Cloudy outlook for Russia funds

By THIS IS MONEY
Updated:

 

IN the two years since Jupiter launched its Emerging European Opportunities unit trust, investors have seen their money grow by 83%.

This has been fuelled largely by steep growth in the Micex index, the fledgling Russian stock market. Some 41% of Jupiter EEO's assets are invested in companies in the former USSR.

However, the future of the Micex is less certain. The index has been rocked recently by problems in Russia's oil industry, not least the accusation of fraud and tax evasion by executives at Yukos, once Russia's richest firm. So should investors be worried?

Elena Shaftan, fund manager of Jupiter EEO, says: 'The Yukos debacle is likely to sour investor sentiment in Russia until the situation is resolved. However, this should not obscure the wider picture of strong economic growth in the region.

'We operate a strict selling discipline,' she adds. 'This means as confidence in Yukos dwindled, the fund's holding in the company was reduced significantly.' But independent financial advisers are cautious. Patrick Connolly of John Scott & Partners Investment Management in Marlow, Buckinghamshire, says: 'In recent years, the Russian stock market has seemed a one-way street with fantastic growth.

'But it has lost 25% since April and there are issues in Russia that are likely to continue causing problems.'

The emerging European fund sector is relatively small, with just three unit trusts and two investment trusts. Assets in these funds are typically weighted towards Russian stock.

Connolly cautions: 'Emerging European markets are an exciting place to be invested, but it's a volatile region and investors need to be comfortable with the risks.

'Issues in Russia coupled with global uncertainty are making these funds less attractive. Rather than an eastern European fund, investors should look at more mainstream emerging markets funds that spread risk.'

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