Are Your ETFs or Emerging Market Funds Full of Russian Stocks and Bonds?
As a result of the Russia-Ukraine war last week, Russia’s sovereign bonds plummeted to distressed levels and Russian stocks dropped the most on record.
UBS triggered margin calls on some wealth management clients that use Russian bonds as collateral for their portfolios after marking down the value of debt issued by Russia and its companies according to Bloomberg News. UBS cut the lending value of some Russian Bonds to zero and is requiring customers to post additional collateral or face abrupt liquidation of securities in their accounts.
Data from Morningstar shows that large money managers such as BlackRock, PIMCO and Invesco all had exposure to Russian bonds as of the end of last year, while others were increasing positions even as rumblings of war rose.
Many emerging market funds that millions of retail investors hold in their portfolios have significant exposure to Russia.
For example, as of January 2022, Carmignac Portfolio EM Debt fund had the world’s largest Russian debt position at over 43%, which was an increase of 10% from August 2021. Vontobel’s Eastern European Bond AM had 40% Russian bonds.
ETFs exposed to Russia are also plummeting. The $1.4 billion VanEck Vectors Russia ETF (RSX) has fallen more than 28% just this year.
Investors need to review their portfolios and see if they have excessive exposure to Russia. It may be the case that financial advisors who recommended unsuitable exposure to Russia will face investment fraud cases from burnt investors.