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Americans who invest in mutual funds and exchange-traded funds are largely isolated from financial exposure to Russia amid the conflict with Ukraine.
There are two reasons: First, stock managers who buy Russian debt or shares of Russian companies usually do so in small quantities; second, the funds that buy these securities (which are usually focused on the developing world) are often the final part of the overall portfolio of investors.
“The reality is that most people in 401 (k) may have really low exposure to Russian stocks and / or bonds, probably below 1%,” said Karin Anderson, director of fixed income strategies in North America at Morningstar, who tracks data on mutual funds and ETFs.
However, according to data provided by Morningstar Direct, there are a handful of equity and bond funds with much larger stakes in Russia. Some have been hit hard in recent days by Western sanctions aimed at crippling Russia’s economy, which could grow even stronger.
The 10 fund funds with the largest exposure distribute at least 9% of their assets in Russia, according to Morningstar. The two largest, the iShares MSCI Russia ETF and the VanEck Russia ETF, hold 95% and 94% of their assets in Russian companies, respectively, according to Morningstar.
The most exposed bond funds are distributed to Russia in much smaller shares than the fund funds. The top 10 hold approximately 4.5% to 8% of their total assets in Russian debt, according to Morningstar. The Western Asset Macro Opportunities Mutual Fund has the largest distribution, at about 8.4%, it said.
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Equity and bond funds are a combination of actively managed and index funds. The latter try to reproduce a specific indicator for stocks or bonds, while fund managers in the first category have more freedom to choose securities according to a specific strategy of the fund.
Importantly, Morningstar data reflects the latest publicly available data on the fund’s stock (as of December 31 or January 31, depending on the fund). Since then, active fund managers may have changed their holdings in Russian stocks and debt due to the invasion and the resulting economic sanctions.
For example, the disclosures determine the distribution of GQG Partners Emerging Markets Equity Fund shares in Russia to more than 16% of the shares. However, the company said on Friday that it had only about 3.7% of its assets on Russian stock, according to Morningstar.
To some extent, the decline in the fund’s share in Russia will occur naturally if the value of these assets falls. (In other words, active decisions by fund managers may not be the main reason.)
Benchmarks that include Russia could eventually eliminate the country, effectively depriving the country of exposure to certain index funds. An official at the MSCI index provider hinted at the possibility on Monday, for example, citing the inability to trade in Russian securities.