In the wake of the recent downing of Malaysian Air Flight 17 over Ukraine, political and financial tensions are intensifying for Russia. The U.S. tightened economic sanctions on Russia even as the news of the tragic plane crash was breaking at the end of last week. And this week, European Union officials lobbed their own sanctions at Russia.
From an investing perspective, many questions may arise: Do you know if your foreign stock fund invests in Russian stocks? Is now a good time to buy funds investing in Russia, or is now a good time to sell?
And if you think now is a good buying opportunity, which funds are best?
The Biggest Foreign Funds – Not Too Exposed to Russian Stocks
Exposure to Russian stocks is likely to be minimal if you invest in one of the world’s largest foreign stock funds. For example, the total assets (including all share classes) of American Funds EuroPacific Growth (AEPGX) is $127 billion, which makes it one of the largest mutual funds in the world. The top Russian holding is Internet company Yandex (YNDX), which only represents 0.5% of the fund portfolio. There’s not much exposure to Russia here.
A bit more value-leaning than EuroPacific Growth, Dodge & Cox International Stock (DODFX), which manages $63 billion in assets, had zero exposure to Russian stocks as of June 30. When a value shop like Dodge & Cox turns up its nose to Russian stocks, you have to wonder about the Russian economy. How low do prices have to fall to become a value?
For a broader perspective, consider the exchange-traded iShares MSCI Emerging Markets (EEM). The top Russian holding is OJSC Magnit GDR (MGNT) — a top food retailer in Russia — at a mere 0.4% of the portfolio.
For added reference, on July 21, MGNT was down 3.35%, and EEM was up 0.4%. In other words, the exposure and impact of political and economic events in Russia is insignificant in this fund, as is the case with most foreign stock funds.
So How Do You Buy Russian Stocks?
It is difficult to know whether now is a good buying opportunity for Russian stocks. Prices are certainly falling now but is Russia a value? The MICEX Index, which is something like the Russian version of the Dow Jones Industrial Index, fell 6.5% in just a few days of trading since Malaysian Air Flight 17 was shot down.
Even if industries in Russia have products and services of value to share with the world, it is difficult to grow without sufficient capital.
The Ukraine standoff had already begun to chase capital out of Russia, and rising tensions today do not bode well for the Russian economy — at least in the short term. But some aggressive investors might be willing to stick their necks out now, assuming things don’t get much worse for the Russian economy in the days, weeks and months ahead.
If you think now is a good buying opportunity, the best way to get concentrated exposure to Russian stocks is through a widely traded ETF (to avoid excessive price volatility, you want to ignore thinly-traded ETFs). Here are a few choice samples: