But its status as a major exporter of raw materials, and analysis of the
Trustnet Equity Europe Single Country sector, suggest those willing to accept the risks could earn some substantial rewards from investing in a Russia fund.
The seven funds available to Hong Kong investors have soundly beaten the sector average return of 95.09 per cent over one year to 26 February. They also take the top seven positions in the sector, with returns ranging from 213.47 per cent from the sector-leading
PF Russian Equities fund to 150.38 per cent from
Manulife Russia Equity.
The PF fund is in fact the top performing HK-registered mutual fund over one year in the
Trustnet database.
Top performing funds over 1-yr
Source: Trustnet HK (data as of 3/03/10)
There is a price to pay for this sector-leading performance, however, and that is sector-leading Volatility, from 36.49 for the Manulife portfolio, to 42.52 for
Parvest Russia. The PF fund comes out relatively well with the second-lowest Volatility, at 37.95. The sector average Volatility is 28.33.
This Volatility, and the inherent risks involved in Russian equities investment, is reflected in the poor performance of the four funds with a track record of longer than two years.
They have taken a battering over this period, compared to the sector average loss of 16.31 per cent, with UBS Equity Russia doing best to lose only 33.26 per cent, and the Manulife fund the worst performer with a loss of 42.36 per cent.
The other two funds with a track record of longer than two years are
JPM Russia, which has lost 42.36 per cent over this timeframe, and Fortis L Equity Russia, which has lost 36.44 per cent.
HSBC GIF Russia Equity completes the top seven funds over one year, having returned 167.83 per cent.
Looking more closely at the sector-leading PF fund, it has very high alpha compared to its Russia-investing peers, at 44.59. Its nearest Alpha rival, the JPM portfolio, is way back with a ratio
of 32.6, although it is close to the PF portfolio in terms of its one-year performance, having returned 201.98 per cent.
The most striking difference between the two funds is their different weightings in basic materials, at 63.7 per cent for the PF portfolio, and 43.1 per cent in JPM Russia.
Arguably, the relatively small difference in one-year performance between the two suggests that there is little danger in considering Russia more than just a resources play.
The second largest constituent in the PF fund is financials, at 14.5 per cent, while the JPM fund plumps for consumer stocks, at 18.1 per cent.
The third-placed fund from Fortis reverts to type, with basic materials at 54.7 per cent of the portfolio. Like the PF fund, its second largest sector constituent is financials. It has yet to consider the consumption play to any great degree, with consumer stocks only 4.7 per cent of the portfolio.