The 334m JPMorgan Russian Securities investment trust is making a significant bet against the Russian energy sector, while favouring domestic growth and the Russian consumer.
The fund, launched in 2002, is 30.9% underweight energy. It is overweight financials 15.3% and consumer discretionary 10.1%.
The extent of the portfolio’s underweight position in energy is mainly a result of not holding Gazprom, Russia’s energy giant, which constitutes a large proportion of the MSCI Russia index.
Claudia Barrulas, client portfolio manager for JPMorgan Russian Securities, says, “Russia is more than just oil. We are purely bottom-up investors, we are not index trackers.
“Most of [the fund’s] top 10 holdings are consumer related.” Within consumption Barrulas includes financials and telecommunications.
“We have been consistent in our approach of favouring the consumer story over the energy story,” she says. “A lot of people perceive Russia as just oil, but it’s a lot more than oil. There are better opportunities in the Russian market other than Gazprom.”
Instead Barrulas says the portfolio is benefiting from the “unfolding of the energy money into the real economy.” The number one holding, at 12.2%, is Sberbank Rossii, Russia’s largest commercial bank.
With unemployment rates falling and GDP per head increasing, more people are able to consume and also borrow, particularly mortgages, says Barrulas. Telecoms also ties in with the theme, she says, because people are becoming more aspirational and more mobile.
Over five years to May 31, 2007, the JPMorgan Russian Securities investment trust returned 481%, compared with the MSCI 10/40 Equity Indices index benchmark return of 319.8%.