Europeans to use ETFs linked to Russian bonds

Investment management group is launching FinEx Tradable Russian Corporate Bonds

Gulf News

Investors in Europe will be able to use exchange traded funds to access Russia’s corporate bond market for the first time with the launch of a new ETF in London on Monday. FinEx, an investment management group, is marking its entry into the European ETF market with the launch of the FinEx Tradable Russian Corporate Bonds Ucits ETF, known as FXRU, which will provide exposure to shorter maturity liquid Eurobonds from Russian companies.

Russian companies have been stepping up their issuance in the international debt markets, raising $17.2 billion (Dh63.19 billion) last year, just shy of 2007’s record $18.1 billion, according to Dealogic, the research company.

A further $7.3 billion has already been raised so far this year, as high oil prices and the low level of sovereign debt provide a positive backdrop for investment in the country’s corporate bond market.

FinEx plans to cross-list the ETF on other major stock exchanges in Europe as soon as possible as part of ambitious plans to improve access for European investors to Russia’s capital markets.

More Russia ETFs are being developed by FinEx, which is aiming to spearhead the development of a domestic ETF industry inside the country.

It is close to launching the first ETFs to be listed in Russia, an initiative that has gained strong support from the Moscow Exchange.

Simon Luhr, chief executive of FinEx Capital Management, said the global ETF market had enjoyed phenomenal growth in recent years but ETFs had yet to take off in many emerging markets.

“They are a new frontier to which we can take our proposition,” said Luhr, a city veteran with 30 years’ experience. He helped to establish the prime broking businesses of both Morgan Stanley and Nomura in London.

Luhr went on to co-found the hedge fund, Marble Bar Asset Management (which was acquired in 2007 by EFG International, a Swiss private bank) and SW1 Capital, an asset management partnership.

Luhr said that a survey of more than 220 institutional investors commissioned by FinEx showed that 72 per cent believed that investors’ appetite for emerging markets corporate debt would increase over the next 12 months while more than a third (35 per cent) expected to see growing interest in Russian corporate debt over the next five years.

The new FinEx ETF, which caries a total expense ratio of 50 basis points, will track the Barclays EM Tradable Russian Corporate Bond Index, which was launched in December 2012.

Back-tested data shows the index delivered a total return of 8.2 per cent in the year to February 15. Securities issued by domestic Russian quasi-sovereign and corporates are eligible for inclusion with a maximum of three bonds per issuer. The index has a relatively short maturity with the duration of the bonds ranging from 18 months to five years. “It is an area of the ETF market that offers great potential,” said Fuhr.

Deborah Fuhr, founding partner at ETFGI, a consultancy that analyses ETF trends, said FinEx was offering a fresh take with its strategy to act as a bridge in bringing western style products to emerging markets while offering western investors access to emerging economies.