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Ian Cowie: I’m selling Russia trust as hostilities mount

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Ian Cowie: I’m selling Russia trust as hostilities mount

A war of words between Britain and Russia after the attempted murder of former spy Sergei Skripal and his daughter Yulia prompted Moscow’s embassy in London to tweet mischievously: ‘Truth is the first casualty of war.’

At the risk of seeming facetious about a tragic situation, I hope this online column about my individual shareholdings is allowed to report another albeit trivial casualty, one of my longest-held investment trusts. After reading the appalling accounts of what happened in Salisbury to a 66-year-old man and his 33-year-old daughter, I sold all my shares in BlackRock Emerging Europe (BEEP) investment trust because 55% of its assets are allocated to Russia.

I first invested in this fund more than a decade ago when it was managed by a subsidiary of the Swiss private bank Pictet and, allowing for a subsequent 10-for-one restructure, the shares traded around 150p. So the 376p I sold at on 7 March meant I more than doubled my money but I still regret feeling forced by events to eject.

After modest performance under Pictet, BEEP has been managed by BlackRock’s co-head of global emerging markets Sam Vecht since 2009, assisted by Chris Colunga since 2016. Weak balance sheets and questionable corporate governance at some Russian and Turkish banks proved problematic for several years after the credit crisis went global in 2008 and low energy prices did not help.

Now top 10 holdings that include, in diminishing order by value, Sberbank, Lukoil, Gazprom, Bank Polski, Rosneft Oil and - Gawd ‘elp us! - the National Bank of Greece, have all contributed to a recent rebound in the share price. BEEP delivered total returns of 24% over the last year, causing this trust to trade at a modest 4.1% discount to net asset value, according to the Association of Investment Companies. Until this month’s outrage, I would have liked to have hung on for more.

Having travelled in Russia, not just to tourist destinations such as Moscow or St. Petersburg but also to the vast hydrocarbon fields at Bovenkovo inside the Arctic Circle, I know that the Russkies are not so very different from we Brits. Most people, regardless of nationality, want to enjoy their family and friends. Oh, and quite a few folk in both countries enjoy a drink or three.

Contrary to some of the propaganda to which we are currently being subjected, Russia is not populated by sinister psychopaths; although I daresay some of them can be found anywhere.

The Russians do, however, have a far harsher recent history than ours, after surviving more than seven decades of a socialist experiment that ended in abject failure less than 30 years ago. They set out to create a workers’ paradise but ended up building a vast prison with guards on the border, shooting anyone who tried to escape.

On a brighter note - and perhaps a cautionary one, too - they are very patriotic people. Even small cities have big memorial squares to the Great Patriotic War, their name for WWII. When I visited one at Salekhard in the Yamalo-Nenets autonomous region, which lies beyond north-east Siberia, it was bustling with babushkas stroking T-34 tanks and sobbing.

No wonder Vladimir Putin’s strong-man act has proved popular among many Russians. That will no doubt result in him winning an unsurprising victory in this Sunday’s presidential election.

BEEP remains an effective way to gain exposure to economic recovery in an exciting region. Unfortunately, it is also an extreme example of how emerging market funds are vulnerable to political risk.

Now it raises ethical issues, too. That's too much excitement for my 'forever fund' and so I sold.

Here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.

 

 

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