Should You Take a Contrarian Bet on Russia?

Morningstar Investment Management's Ed Fane says last year Russia was a classic opportunity for a contrarian, offering great value and negative investor sentiment

Edward Fane 26 May, 2015 | 2:36PM
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Contrarian investing is not simply about buying unpopular assets, but about owning those assets during the recovery process and knowing when to sell. Our holding in Russian equities is a case study of the way these opportunities evolve. Last year Russia was a classic opportunity for a contrarian, offering great value, poor news flow and negative investor sentiment. When purchasing the position we were very confident that value would generate attractive returns.

This has become the most ‘interesting’ of our contrarian positions as many of the key aspects of the original investment case have now changed.  Heavy falls in the oil price, the rouble, the intensity of the crisis in Ukraine and associated sanctions, have all reversed to some extent.

As we enter the next phase of the investment journey we have to rely less on compelling metrics and lean more on a nuanced fundamental view.

Neptune Russia and Greater Russia

Morningstar Investment Management invests in this Bronze Rated fund in several of their portfolios. Fund analyst Lena Tsymbaluk says that this fund remains a solid choice within its category, even if its risks were on show in 2014.

“The fund benefits from a seasoned manager with a wealth of experience in Russian equities. Indeed, almost half of Robin Geffen’s 30 years’ experience is in Russian equities. He set up Neptune Investment Management in May 2002 and has since managed a number of the firm’s flagship funds. He receives considerable support from a well-resourced team that is heavily involved in the research process,” says Tsymbaluk.

“The investment approach is based on Neptune’s philosophy, which is a mixture of top-down and bottom-up analysis. The group’s analysts evaluate the key sectors and their growth prospects against the prevailing macroeconomic climate and decide in which sectors to invest. From a bottom-up perspective, the manager aims to identify market leaders with strong earnings, solid competitive position, and efficient capital allocation. Geffen has historically preferred Russia’s domestically oriented sectors, rather than energy.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Liontrust Russia A Acc GBP1.81 GBP0.20

About Author

Edward Fane  is a Senior Investment Consultant and Portfolio Manager for Morningstar

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