Are you one of those investors who unknowingly own Russian stocks? Let me help you find out. Many Russian stocks have gone from high prices to penny stocks in a matter of days. In contrast, some stocks stand to benefit from the Ukraine Russia War. But how do you know and what should you do?
The first thing you should ask yourself is if you own a mutual fund, ETF, have a state pension, or use a money manager that owns Russian stocks, will it bother you? And if it does, I’m going to give you information that might help you decide what you want to do about it.
I’ll jump right in and give you a few examples of investment companies that have recently owned Russian stocks. And they may still own Russian stocks today!
You will find that fund companies like Capital Group[1], American Funds[2], VanEck[3], Delaware Funds[4], DFA[5], JP Morgan[6], Fidelity[7] , and CREF[1] recently owned Russian stocks. I say recently because things change quickly, and some companies may be trying to divest themselves of any Russian stocks. But in most cases, the percentages of total assets are low. That is except for companies like the VanEck Russia Fund. And that is kind of self-explanatory.
Regardless of your moral opinion, anyone owning Russian stocks through their investment portfolio will wonder what happens to the value now?
How do you know?
But first things first, how do you find out if your fund owns Russian stocks? A common thought is that Russian stocks are owned by funds that are in emerging, international, or foreign stock markets. That may be true, but don’t overlook some of the funds that are focused on income. For example, a company like Russian oil company Lukoil (LUKOY) paid a dividend in 2021 of 8.01%. So if you own an income fund, you might want to check the company’s holdings to see if your fund owns other Russian dividend-paying companies.
More common than you think.
When I first started to put this information together, I thought I could list some of the major funds that have Russian Stocks. I thought there probably aren’t too many investments that buy Russian stocks. Was I ever wrong!
Most major investment fund companies, many institutional money managers, and even some state-run retirement funds own Russian stocks.
A recent Wall Street Journal article stated, “Many pension systems contacted by WSJ Pro Private Equity, including California Public Employees’ Retirement System, California State Teachers’ Retirement System, Connecticut Retirement Plans and Trust Funds, Florida State Board of Administration, Teacher Retirement System of Texas, Colorado Public Employees’ Retirement Association and Washington State Investment Board, each said their exposure to Russian investments was less than 1% of their total assets.”[8] But they still owned Russian stocks?
How do you find out?
So how do you find out if your investment portfolio owns Russian stocks? First off, one of the easiest ways is to look on the company’s website. All the companies that I have listed above detailed their holdings on their website. If you look at the endnotes, I have listed the links in the citations.
But holdings listed on their website only give you a snapshot at the time of the report.
If you really want to dig deeper, mutual funds are required by the SEC to list their holdings every quarter. Form N-Q is used to disclose holdings at the end of the first and third quarters of the fiscal year, and Form N-CSR is used for the second and fourth quarters.
You can find those filings on the SEC database called EDGAR.
I could try to tell you how to navigate the database here, but it may be easier if you find step-by-step directions. A great article on Investopedia called Electronic Data Gathering, Analysis, and Retrieval (EDGAR). [9]
What now?
So, you found out that your investment fund has Russian stocks. What do you do now? The answer depends on your sentiment. If owning Russian stocks goes against your moral beliefs, then you can decide to sell or hold your fund.
If you happen to be a participant in a state-operated pension fund, all you can do is complain to the board of directors. But don’t discount the power of the participants. Participants are also voters. If you are in a state, complain to your governor. Many governors have taken a tough stance on state institutions owning Russian companies. Massachusetts and Colorado Governors have issued orders to terminate contracts involving Russian companies. [10] ,9
Look before you leap!
Before you jump into action, you need to know a couple of things. First, unless your fund is a Russian-specific fund, the Russian stocks are probably a low percentage of the overall assets. That is one of the benefits of fund investing. Your investment is spread across many stocks.
By the time you read or hear this information, the value of the stock is already down. So, you probably already have lost some value. However, it is a distinct possibility that the level of loss is not known yet.
The Russian stock market has been closed. If a stock has been halted in trading, the stock’s current value will not be reflected in the overall value of the fund. If your fund trades in shares or units, the value will be as of the last value that the frozen stock traded.
What if there’s no more trading?
If that stock never trades again, the fund will take it as a loss, and it will be reflected in the share or unit price at that time. With mutual funds, the mutual fund company redeems shares, so there is always a market. ETFs are traded like stocks, so the valuation depends on the current trading day value.
Even if holding Russian stocks is against your personal beliefs, the damage may already be done. Selling that fund may do nothing but lock in your losses. Could the value get worse? Yes, if the Russian stock goes to zero. And many of them are close to that point.
An example would be the company that is managing Nord Stream 2. According to a NewsMax report[11], that company is expected to claim bankruptcy. Even though Nord Stream 2 is in Switzerland, a significant portion of the company is owned by a giant Russian oil company Gazprom Group (OGZPY).
In the past month, Gazprom has gone from $9.97 on February 16th to $1.10 at midday on March 3rd. And as of March 3rd, Gazprom stock trading completely. So you can’t sell or buy it if you want to.
Could it come back?
The Russian stock market will probably not rebound for a very long time, if ever. The events in Ukraine have fundamentally changed how the world views Russia. As a result, the reputation of Russian companies has dropped dramatically. And reputations are difficult to gain and easily lost. Larry Fink, the CEO of BlackRock, put it this way.
“The invasion of Ukraine has fundamentally changed Russia’s role in the world. Nations have united in imposing sanctions, which we strongly support. Global capital markets have gone even further. Capital is being pulled by investors and companies that have long done business in Russia. This demonstrates how the capital markets can work constructively to provide capital to those working within the system and quickly deny it to those who operate outside it.”[12]
In the case of Gazprom, the Nord Stream 2 project represented about 15% to 20% of Gazprom’s net worth. That is value that will probably be written off permanently as a loss. In other words, part of that value is never coming back.
It’s hard to run away
Unless you are going to invest in individual stocks or portfolios focused on non-emerging growth stocks, it will be difficult to run away from exposure to Russian-owned companies. You may look at the objective stated in the portfolio’s prospectus to see if it has eliminated the option of investing in Russia. That is a type of censure that is not unheard of. In the 1980s, many pension funds divested their investments from South Africa because of apartheid.
Breaking up is hard to do
Divesting from Russia will be much more complicated because of unknown exposure. There are so many banks in Europe that have ties to Russia and the rest of the world. They are doing business with other investment portfolios, and you don’t even know about their ties to Russia.
There are banks like Raiffeisen Bank, an Austrian lender that at first declined to cut ties to Russia. But the bank was forced to suspend its dividend because of the Ukraine invasion.[13] However, further reports suggest that the company is considering leaving Russia and Ukraine if the local banks need more funding.[14] Raiffeisen Bank operates in the United States as RB International Markets.
OTP Bank is a Hungarian bank that is central Europe’s largest independent lender[15]. OTB Bank has roughly 4,500 locations in Russia[16]. At this time, OTP Bank has decided to keep its ties to Russia. [17]
And there is UniCredit, an Italian bank that is one of the largest banks in Russia[18] as well as the second-largest bank in Italy. However, UniCredit appears to be more willing to separate itself from its Russian interest. For example, in January, UniCredit called off a deal in Russia. And other reports indicate that if UniCredit wrote off their Russian alliances, it would not severely impact the bank’s overall operations.[19]
Selling now is a ripple in the ocean.
If you own an investment with Russian stocks, selling it will have very little if any effect on Russia. The most significant impact on the Russian government is coming from other nations that have agreed to sanction Russia. Russian stocks are more like pawns in a chess game. Saying that is not to lessen the humanitarian losses that the Russian government has inflicted on Ukraine. It is a financial reality.
Even the Russian people are pawns in this war. About 17 million Russian citizens have bought stocks on the Moscow Exchange[20]. As a result, all those Russian shareholders’ investments have been devastated.
Some active money managers in the US have trimmed their Russian stock holdings, but it was too little, too late[1]for many of them.
So, what should you do?
If you own Russian stocks or are invested in a portfolio that holds Russian stocks, what you should do now is a question of conscious. This is my opinion, but selling now will do next to nothing. However, if it makes you feel better, then do it. But realize you will have losses.
But, please understand that you are not alone to be shocked by the Russian government’s callous disregard for Ukraine’s sovereignty. Many investment providers have taken the stance of BlackRock. In Larry Fink’s open letter, he went on to say,
“We also have proactively advocated with our index providers to remove Russian securities from broad-based indices. Russian securities today account for less than 0.01% of our clients’ assets, mostly in our index portfolios.” 13
If the conflict in Ukraine does upset you, what you can do is let your opinion be known. Ask your legislatures to restrict investment or trade with Russia as long as the conflict exists. The most powerful influence on the Russian government now is other governments’ financial sanctions.
Invest in what helps
There will be companies that benefit from the conflict between Ukraine and Russia. Again, this is my personal opinion, but I look at investing in companies that are going to help. Russia is infamous for its cyber-attacks. As the war wages on, cyber-attacks have increased. Companies like Palo Alto Networks and CrowdStrike stand to benefit from their cybersecurity services. Any investing involves risk, and many cybersecurity companies are trading at a value far, far above the average stock.
On the other hand, there are companies that produce weapons that will benefit from the war. For example, the United States is sending Stinger missiles to Ukraine[21]. “The Dutch are sending rocket launchers for air defense. The Estonians are sending Javelin antitank missiles. The Poles and the Latvians are sending Stinger surface-to-air missiles. The Czechs are sending machine guns, sniper rifles, pistols, and ammunition.”[22] So aerospace and defense contractors do stand to benefit from increased sales to governments supporting Ukraine.
But don’t think that investing in any of these companies is a slam-dunk. Any investing you do should fit into your personal investment plan and risk tolerance. It should go without saying, but the past performance of any stock is not an indicator of its future performance.
Don’t forget
When investing, remember that you should consider your personal situation and your risk tolerance. This information is only for educational purposes. It is not investment advice. Please read or listen to the disclosure that follows.
[1] The Capital Group Companies, Inc. (2021, December 31). Capital World Growth and Income Fund ®. Retrieved March 2, 2022, from https://www.capitalgroup.com/individual/investments/quarterlyholdings/cwgix
[2] American Funds Distributors, Inc. (2021, December 31). Capital Income Builder®. Retrieved March 2, 2022, from https://www.capitalgroup.com/individual/investments/quarterlyholdings/caibx
[3] Van Eck Securities Corporation. (2022, January 31). Vaneck Russia ETF Overview. Retrieved March 2, 2022, from https://www.vaneck.com/us/en/investments/russia-etf-rsx/
[4] Macquarie Asset Management. (2022, February 25). Delaware Emerging Markets Fund. Retrieved March 2, 2022, from https://www.delawarefunds.com/products/mutual-funds/global-international-equity/delaware-emerging-markets-fund#portfolio
[5] Dimensional Fund Advisors. (2021, October 31). Dimensional Annual Report. Retrieved March 2, 2022, from https://prospectus-express.broadridge.com/getcombinedpdf/dimenll/ann?key=wWSusfQcmalTABshzCBqhHZ–9N0uaUu_lEvLGhYLYQ1&fid=233203587
[6] J.P. Morgan Asset Management. (2022, January 31). JPM emerging markets opportunities a (ACC) – USD | J.P. Morgan asset management. Retrieved March 2, 2022, from https://am.jpmorgan.com/nl/en/asset-management/adv/products/jpm-emerging-markets-opportunities-a-acc-usd-lu0431992006#/portfolio
[7] Fidelity Investments. (2022, January 31). Fidelity® Series Emerging Markets Opportunities Fund. Retrieved March 2, 2022, from https://fundresearch.fidelity.com/mutual-funds/composition/315910125
[8] Singh, P. (2022, February 25). Public pensions assess exposure to Russian investments. Wall Street Journal. https://www.wsj.com/articles/public-pensions-assess-exposure-to-russian-investments-11645826423?mod=article_inline
[9] Chen, J. (2022, February 13). Electronic data gathering, analysis and retrieval (EDGAR). Investopedia. https://www.investopedia.com/terms/e/edgar.asp
[10] Stout, M. (2022, February 28). The Boston Globe – Baker orders review of state contracts, targeting potential deals with Russian companies. Microsoft News. https://www.msn.com/en-us/news/politics/baker-orders-review-of-state-contracts-targeting-potential-deals-with-russian-companies/ar-AAUr4WH?ocid=uxbndlbing
[11] NewsMax. (2022, March 1). Nord Stream 2 Owner Bankrupt. https://www.newsmax.com/finance/streettalk/nord-stream-2-owner-insolvency-sanction-against-russia-over-ukraine/2022/03/01/id/1059000/
[12] Fink, L. (2022, March 3). Larry fink on LinkedIn: I know I speak on behalf of everyone at BlackRock. LinkedIn. https://www.linkedin.com/posts/laurencefink_i-know-i-speak-on-behalf-of-everyone-at-blackrock-activity-6905297027081871360-U_XN
[13] Walker, O. (2022, March 1). Raiffeisen chief commits to Russia but suspends dividend. Financial Times. https://amp.ft.com/content/9592d376-de4b-47a0-b1ec-1934b65b569b
[14] Schwarz-Goerlich, A., O’Donnell, J., & Canepa, F. (2022, March 1). EXCLUSIVE-Raiffeisen looks at leaving Russia after Ukraine invasion – sources. NASDAQ. https://www.nasdaq.com/articles/exclusive-raiffeisen-looks-at-leaving-russia-after-ukraine-invasion-sources
[15] Reuters. (2022, March 2). Hungary’s OTP bank can withstand further market shocks in Russia, Ukraine -cenbank. https://www.reuters.com/markets/europe/hungarys-otp-bank-can-withstand-further-market-shocks-russia-ukraine-cenbank-2022-03-02/
[16] OTP Bank. (n.d.). About us. Retrieved March 2, 2022, from https://www.otpbank.ru/en/about/
[17] Walker, O., & Morris, S. (2022, January 29). Banks betting on Russia face a new test of their appetite. Financial Times. https://www.ft.com/content/ec5ad958-101c-4185-a56b-09234d2c9d36
[18] UniCredit Bank. (n.d.). About us. Retrieved March 2, 2022, from https://www.unicreditbank.ru/en/about.html
[19] Barbaglia, P. (2022, March 2). UniCredit’s banco BPM bid plan stymied by Ukraine crisis, sources say. Reuters. https://www.reuters.com/markets/europe/unicredits-banco-bpm-bid-plan-stymied-by-ukraine-crisis-sources-say-2022-03-02/
[20] Moscow Exchange. (2022). Moscow Exchange Group. Retrieved March 3, 2022, from https://web.archive.org/web/20220224093325/https://www.moex.com/s348
[21] Associated Press. (2022, February 27). U.S. to send stinger anti-aircraft missiles to Ukraine. MarketWatch. https://www.marketwatch.com/story/u-s-to-send-stinger-anti-aircraft-missiles-to-ukraine-01645999474?mod=search_headline
[22] Erlanger, S. (2022, March 2). NATO countries pour weapons into Ukraine, risking conflict with Russia. The New York Times – Breaking News, US News, World News and Videos. https://www.nytimes.com/2022/03/02/world/europe/nato-weapons-ukraine-russia.html
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