An international investment management group launched a Russian corporate bond Exchange Traded Fund (ETF) on the London Stock Exchange on Monday, the company’s first ETF, as part of a strategy to launch multiple ETFs cross-traded on Western and emerging stock markets, the group’s CEO said.
FinEx ETF, which is part of FinEx Group, launched the FinEx Tradable Russian Corporate Bonds UCITS ETF in London – seeded with $10 million – and will list it in Moscow as well. It was first listed on the Irish Stock Exchange.
“We are launching now about $10 million at the moment and obviously we intend to increase that through distribution to retail and institutional investors,” Simon Luhr, the CEO of FinEx, told Emerging Markets.
ETFs generally track an index, a commodity or a basket of assets and are traded like a stock on an exchange; investors get the diversification of a fund but they can also sell short or buy on margin.
The FinEx Tradable Russian Corporate Bonds UCITS ETF is an Irish-based ETF that tracks the Barclays Emerging Markets Tradable Russian Corporate Bond Index (EMRUS), which focuses on Eurobonds with shorter maturity issued by big Russian companies such as gas giant Gazprom, oil company Lukoil or Sberbank; 81% of the corporate bonds in the EMRUS index are investment grade rated.
For the moment most of the investors in the FinEx ETF are institutional and mainly from Switzerland, but FinEx wants to expand the base to include retail and institutional investors from both developed and emerging markets.
The ETF will offer Russian investors a chance to diversify once it is listed on the Moscow stock exchange, as it gives them the opportunity to invest in local companies with the guarantee that they are doing so via an instrument that is regulated by European Union legislation.
Funds that are regulated under the “Undertakings for the Collective Investment of Transferable Securities (UCITS)” directive can be marketed freely in all countries that belong to the European Union. EU regulation is seen by regulators in Central and Eastern Europe as a benchmark for national regulation. ‘INSTANT LIQUIDITY’
Evgeny Kovalishin, CEO of FinEx’s Moscow unit, said that investment products currently existing in Russia are mostly linked to term cash deposits, so investors have to wait for the deposit to reach maturity. “With this product, you get instant liquidity,” he said referring to the FinEx ETF.
Kovalishin explained that in Russia, big issuers of debt such as Gazprom or Sberbank are seen as being backed by the government and therefore much more secure than implied by their ratings, but when they go on the external markets with Eurobonds, “they are treated like any other BBB-rated issuer.”
“Russian companies are willing to pay a premium in order to stay in the European markets,” he said. “This instrument captures this premium.”
The Moscow-listed FinEx ETF also offers a ruble hedge for investors prepared to take the ruble risk.
“When you put the ruble currency hedge on it, it actually increases the yield, because it takes into consideration the ruble interest. That should yield in excess of 10%,” Luhr said.
Besides fixed income, his company plans to launch ETFs tracking equities and commodities, listed in London and Moscow, to enable investors to build a balanced portfolio, he said.
“We may launch European stock index ETFs in Russia. The outlook for Russia to become a financial hub is positive,” Luhr said.
An online survey of 225 institutional investors across Europe done by FinEx ETF in December last year showed that 46% were “very favorable or quite favorable” towards ETFs and 44% expected to increase their exposure to them over the next year.
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