Investment boutique Skagen has reduced Russian bets exposed to sanctions but warned against pulling out of the country entirely.
The Nordic company said it had trimmed exposure in its flagship Skagen Kon-Tiki fund over the past three months.
In an investor update, Skagen said it had reduced exposure to banking group VTB Bank and energy giant Gazprom but retains an overweight position in the country, which makes up 6.2% of the portfolio.
In a note written by company co-founder and emerging markets specialist Kristoffer Stensrud, the company said its holding in VTB Bank (0.8%) was reduced after a strong share price recovery earlier this year.
‘The current situation does not fundamentally alter our investment cases, but may push the revaluations of our investments out in time.’
‘We are comfortable with the current level based on our assessment of the current risks and potential rewards from holding these investments. History shows that the greatest returns can come out of times of crisis,’ Citywire A-rated Stensrud said.
Elsewhere in Skagen range, the company's global equity fund, which has a 5.6% overweight position in Russia, holds Sberbank (0.4%), the largest credit institution in the country.
Skagen expects the bank to deliver profitable growth and keep trading at an attractive valuation. Earlier this year, Kristian Falnes, co-manager on the Skagen Global fund, had said the fund was at ‘peak exposure’ to the country.
Russia is cheap
Skagen said geopolitical tensions have made Russia the lowest valued stock market in the world, with a price to earnings ratio of just 5.8x.
The company pointed out that in London trading Gazprom, VTB Bank and Sberbank have declined respectively 16%, 25% and 35% this year. In the latest month alone, the three stocks have declined 16%, 10% and 17%.
‘We focus on the undervalued, unpopular and under-researched stocks to find our investments. The current situation does not fundamentally alter our investment cases, but may push the revaluations of our investments out in time,’ Stensrud added.
Sanctions’ limited impact
Skagen said new sanctions imposed on the country would have limited impact on Russian financial institutions, as they are not directly dependent on raising new capital in the international market and can get support from the Russian government.
The impact on Gazprom, the company said, is expected to be very limited too as the restrictions only apply to oil production, not gas, and include deep-water, Arctic and shale developments rather than conventional oil fields.
‘The current sanctions do not directly disrupt the daily operations of the companies where we are invested in the short-term, but we hope that the sanctions will lead to an end of hostilities and normalisation of trade ties soon,’ said Stensrud.
In the longer-term, according to Skagen, the sanctioned companies may experience more impact from a lack of financing and equipment for expanding their businesses and new projects.
Over the past three years, the Skagen Kon-Tiki fund returned 6.74%, 4.51 percentage points more than the MSCI EM TR index.