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Americans who invest in mutual funds and exchange-traded funds have been largely shielded from financial exposure to Russia over its conflict with Ukraine.
The reasons are twofold: first, fund managers who buy Russian debt or shares of Russian companies usually do so in small amounts; second, the funds that buy these securities (which are typically focused on developing countries) often make up only a marginal portion of investors’ overall portfolios.
“The reality is that most people in a 401(k) might have very little exposure to Russian stocks and/or bonds, probably less than 1%,” said Karin Anderson, director of North American bond strategies at Morningstar. , which tracks data on mutual funds and ETFs.
However, there are a handful of equity and bond funds with much larger holdings in Russia, according to data provided by Morningstar Direct. Some have been hit hard in recent days, due to Western sanctions aimed at crippling the Russian economy, which could worsen further.
The 10 most exposed equity funds allocate at least 9% of their assets to Russia, according to Morningstar data. 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 allocate much smaller shares to Russia than equity funds. The top 10 hold about 4.5% to 8% of their total assets in Russian debt, according to Morningstar. The Western Asset Macro Opportunities mutual fund has the largest allocation, about 8.4%, he said.
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Equity and bond funds are a mix of actively managed and index funds. The latter try to replicate a particular benchmark stock or bond, while fund managers in the first category have more latitude to select securities according to a particular fund strategy.
It’s important to note that Morningstar’s data reflects the most recent publicly available data on fund holdings (as of December 31 or January 31, depending on the fund). Active fund managers may have since shifted their holdings of Russian stocks and debt in light of the invasion and resulting economic sanctions.
For example, the disclosures peg GQG Partners Emerging Markets Equity Fund’s Russian equity allocation at over 16% of holdings. However, the company said on Friday it only had about 3.7% of assets exposed to Russian stocks, according to Morningstar.
To some extent, a reduction in a fund’s Russian holdings will naturally occur if the value of those holdings declines. (In other words, active decisions by fund managers may not be the root cause.)
Benchmarks that incorporate Russia may ultimately remove the country, thereby removing the country exposure of some index funds. An official at index provider MSCI hinted at the possibility on Monday, for example, citing an inability to transact Russian securities.