Russia has been hit hard by the global financial crisis, says Matthias Siller. But that doesn’t mean it can’t still deliver “solid growth” from here.
Given Russia’s status as an energy powerhouse, you might think that his Baring Russia Fund is heavily invested in oil. Not so. Siller is cautious about the country’s oil and gas companies’ ability to turn sales into decent profits. That’s because the Russian government is looking for revenues, and energy is the obvious place to go for it.
The re-introduction of export duty on East-Siberian oil fields in July is “part of a chain of events that clearly highlight the Russian state’s intention to seek more budget financing from the oil and gas sector”.
On the plus side, what is bad for energy might be good for the rest of the economy: rising taxes should mean that “social spending and public-sector wages continue to be increased at a rapid pace”.
As a result the fund is “overweight” in sectors such as retail, health care and telephony. One of the top holdings is Mobile TeleSystems, a telecoms group operating in Russia, Eastern Europe and Central Asia. It offers mobile voice communication, broadband, pay TV and entertainment content – the consumer services that should benefit from rising lifestyles in emerging markets. London-listed X5, which operates around 1,300 supermarkets across Russia, will also benefit from a rise in consumer spending.
The fund has delivered annualised returns of 24.3% for the last ten years. It has an initial charge of 5.00% (this can be avoided by purchasing it through a fund supermarket) and an annual fee of 1.5%.
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