Russia's VTB Capital Asset Management has launched the country's first dividend fund to buy both domestic and foreign stocks, after a Russia-only approach followed by some in its industry disappointed investors.
Russia’s VTB Capital Asset Management has launched the country’s first dividend fund to buy both domestic and foreign stocks, after a Russia-only approach followed by some in its industry disappointed investors.
Investors were put off by the traditionally low dividend distributions Russian firms have made, and by a lack of regulation of these payments by the government.
The only dividend fund in Russia so far came from Region Asset Management, though it decided to complement dividend-yielding stock holdings with corporate bonds. It has been on the market since 2003, and made 6.86% so far this year.
VTB says its fund responds to client demand for stable dividend yields, protection against inflation and diversification of risk.
The fund will aim for a 30/70 split of Russian and foreign stocks, as VTB believes this will provide the necessary geographic diversification to reduce single country risks.
The firm estimates that dividend yields can add up to 6% to the returns generated from increases in value of the fund’s holdings.
The investment strategy will focus on companies valued at over $5bn.
VTB’s is not the first fund in Russia to invest in foreign stocks – local managers started offering such funds about two years ago – but it is the first dividend fund to take a broader universe.
Russia’s financial news source Kommersant reports Russian large caps Gazprom, Lukoil and Sberbank have all made it into the portfolio. Foreign names include America’s AT&T, Australia’s Westpac Banking Corp and Germany’s RWE.
However, as VTB begins its global dividend approach, the environment for dividends in its homeland could be about to change, for the good.
This is because the government is forcing companies to distribute 25% of their earnings to shareholders. This increase, from the end of this year, is a significant jump on the current requirement for 14% to be distributed to shareholders.