Fund Objective

The objective of the Fund is to obtain long-term capital growth.

View on Past Performance

The Russian market suffered a sharp correction in recent months, with several country-specifi c factors weighing on sentiment, such as the confl ict in Georgia and Putin's criticism of pricing practices at steelmaker Mechel.However, the most important drivers were the falling oil price and a liquidity crisis, triggered by tightness in international credit markets and deteriorating investor sentiment. The resulting share price falls led to margin calls for highly leveraged local investors, creating a vicious circle of forced sales, falling prices and more margin calls.

Future Expectations

With regard to the fi rst point, the government has intervened in a timely and effective way, injecting more than $200bn of liquidity into the fi nancial system. We see these measures as adequate, but expect that it will take some time for their effects to fi lter through the system.In the meantime, while some smaller companies may fail, consolidation in several sectors may provide scope for larger companies that can ride out the slowdown to improve their margins and market positions.The oil price is still under short term pressure due to slowing global economic growth. However, once demand eventually stabilises, there is scope for long term prices to remain at a relatively high level due to the elevated marginal costs of production.Russia benefi ts from a strong fi nancial position, with reserves that are in excess of the total of state and private sector debt and a budget surplus of $100bn. Valuations are now extremely attractive for investors with a long term horizon, with several quality companies trading around or less than the book value of their assets.

Fund Details