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Latest updates: Our views on the investment implications of the Russia-Ukraine conflict

Latest updates: Our views on the investment implications of the Russia-Ukraine conflict

07-03-2022 | Insight
In this article we will regularly post updates from the various investment teams. Stay tuned.

Speed read

  • With diplomacy having failed, severe sanctions unlikely to deter Putin
  • Portfolio exposures to Russia trimmed or completely sold ahead of escalation
  • We continue to monitor developments and will make further portfolio adjustments as needed

Some implications for quantitative equity portfolios of the decision by index providers to remove Russian equities

Authors: The Quant Equity Team | Quant Equity
Published: 3 March 2022 | 17:30

Valuation
Robeco is closely monitoring the impact of the trading suspensions of Russian assets for its quant equity funds and will apply fair value pricing as stipulated in the prospectus of the funds. The decision by index providers MSCI and FTSE Russell to remove Russian stocks from their respective indices at a valuation of close to zero provides an important input to Robeco’s current process of fair value pricing of these stocks.

Exposure to Russia
It remains unclear if and when the Moscow stock exchange will resume trading, how long trading bans will stay in place for foreign investors and if there will be continued reluctance among brokers and custodians to facilitate trading. Also, it is still unknown if and when trading of Russian stocks listed on offshore exchanges will commence.

The move by MSCI and FTSE Russell effectively implies that these stocks will become off-benchmark stocks. In general, our quantitative funds are entitled to remain invested in off-benchmark stocks if these meet the criteria of eligible countries and sustainability. Given the special circumstances, we are evaluating whether these Russian stocks should remain part of our fund portfolios once trading resumes.

The overnight collapse of an emerging market
In just seven days’ time Russia has transformed from a respected emerging market constituent to the pariah of global financial markets, thereby impacting the financial wealth of our clients. We regret the negative financial impact of plummeting Russian stocks on our quant portfolios. However, the humans affected by these geopolitical events ultimately bear the real costs.

These recent events remind us how important it is to focus on financial wealth as well as well-being when managing portfolios on behalf of our clients. Given the size of Russia in emerging and global indices and the objective of our portfolios to deliver high absolute or relative risk-adjusted returns, it means that having exposure to these stocks has been inevitable for most portfolios. Therefore, and this accounts for all emerging markets, when selecting stocks we always aim to integrate sustainability dimensions in the best way possible when searching for alpha opportunities. In addition, when managing the portfolio we strive to act as good stewards by actively pursuing a sustainable voting and engagement agenda.

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