Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

Russia is the largest country overweight among active Emerging Market funds.  The average holding weight of 4.11% represents an overweight of 1.04% above the iShares MSCI Emerging Markets ETF weight (cash adjusted).In the wake of new US sanctions and troops gathering on the Ukraine border, the key stock risks to active investors are overweight positions in <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a>, <a href="https://www.smartkarma.com/entities/lukoil-pjsc-ea76a137-f664-4066-ba45-32e13c8b007e" target="_blank" data-smartkarma-citation="entities:28476:1" rel="noopener">LUKOIL PJSC (LUKOY US)</a> and <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a>, with over 80% of the funds in our analysis holding one or more of these stocks.The 2014 annexation of Crimea provides a useful insight in to the behavior of active investors during a period of political uncertainty.  EM investors were quick to react, reducing Russia exposure by 4.26% over the course of the year and over a quarter of funds moving from overweight to underweight.  Whether this situation reaches the heights of 2014 remains to be seen, but do not underestimate an active manager's willingness to cut or reduce allocations when the investment case becomes muddied by political events.

Russia is the largest country overweight among active Emerging Market funds.  The average holding weight of 4.11% represents an overweight of 1.04% above the iShares MSCI Emerging Markets ETF weight (cash adjusted).In the wake of new US sanctions and troops gathering on the Ukraine border, the key stock risks to active investors are overweight positions in Sberbank Of Russia Pjsc (SBER LI), LUKOIL PJSC (LUKOY US) and Yandex (YNDX US), with over 80% of the funds in our analysis holding one or more of these stocks.The 2014 annexation of Crimea provides a useful insight in to the behavior of active investors during a period of political uncertainty.  EM investors were quick to react, reducing Russia exposure by 4.26% over the course of the year and over a quarter of funds moving from overweight to underweight.  Whether this situation reaches the heights of 2014 remains to be seen, but do not underestimate an active manager's willingness to cut or reduce allocations when the investment case becomes muddied by political events. 

Russia:  Overweight Risk as Ukraine Tensions Rise

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Sberbank of Russia PJSC / Equity Bottom-Up

*New US Sanctions: The US Biden administration announced a series of sanctions today against Russia, which leaves the country on the verge of being tossed out of Western banking/finance markets related to SolarWinds and US elections meddling; and  *Nuclear Option Still Available: As bad as this is for Russia and her largest financial institutions, such as Sberbank of Russia (SBER.RU), the Biden administration did not move to the nuclear option of barring investors from holding Russian sovereign debt in the secondary market nor did it actually add tycoons to the sanctions list. The painful worst case scenario of barring ownership of Russian debt has been avoided, as foreign investors own some 20% or USD 37 bn in Russian paper - US investors account for half of foreign holdings. This situation could have triggered substantial indices-related selling.

*New US Sanctions: The US Biden administration announced a series of sanctions today against Russia, which leaves the country on the verge of being tossed out of Western banking/finance markets related to SolarWinds and US elections meddling; and  *Nuclear Option Still Available: As bad as this is for Russia and her largest financial institutions, such as Sberbank of Russia (SBER.RU), the Biden administration did not move to the nuclear option of barring investors from holding Russian sovereign debt in the secondary market nor did it actually add tycoons to the sanctions list. The painful worst case scenario of barring ownership of Russian debt has been avoided, as foreign investors own some 20% or USD 37 bn in Russian paper - US investors account for half of foreign holdings. This situation could have triggered substantial indices-related selling. 

Sberbank of Russia – Dealing With New Sanctions

*Russia Military Raises Threat Level: After years of an uneasy stalemate, Russia’s Southern Military Theater recently concluded major exercises in March. Despite their conclusion, 3-4 thousand Russian troops allegedly remain just 30 miles from Ukraine's southern border. On March 27th, Russia indicated its displeasure with the lack of progress on ceasefire negotiations while the Ukrainian Parliament announced that the July ceasefire had broken down with continued skirmishes and border incursions;  *Ukranian Bank Already Under Pressure: SberBank of Russia PJSC (SBER.RM) [Sberbank] has been operating its wholly-owned Ukraine subsidiary, AO Sberbank (AO), since 2007. AO has been operating profitably following improved cost efficiencies and lowered loss provisions despite being constrained by a high level of problem loans and exposure to COVID-19 affected sectors. Further, AO, along with most other Ukranian banks, has substantial government bond holdings whose ratings are already challenged; and   * New Sanctions Likely Coming: We would any new additional sanctions to include: the Nord Stream II Pipeline, which is close to allowing the transshipment of natural gas under the Baltic Sea to Germany (bypassing Ukraine); further sanctions on the Russian financial sector which could exacerbate problems for the already challenged AO; and a ban on Russian sovereign debt as an investment.

*Russia Military Raises Threat Level: After years of an uneasy stalemate, Russia’s Southern Military Theater recently concluded major exercises in March. Despite their conclusion, 3-4 thousand Russian troops allegedly remain just 30 miles from Ukraine's southern border. On March 27th, Russia indicated its displeasure with the lack of progress on ceasefire negotiations while the Ukrainian Parliament announced that the July ceasefire had broken down with continued skirmishes and border incursions;  *Ukranian Bank Already Under Pressure: SberBank of Russia PJSC (SBER.RM) [Sberbank] has been operating its wholly-owned Ukraine subsidiary, AO Sberbank (AO), since 2007. AO has been operating profitably following improved cost efficiencies and lowered loss provisions despite being constrained by a high level of problem loans and exposure to COVID-19 affected sectors. Further, AO, along with most other Ukranian banks, has substantial government bond holdings whose ratings are already challenged; and   * New Sanctions Likely Coming: We would any new additional sanctions to include: the Nord Stream II Pipeline, which is close to allowing the transshipment of natural gas under the Baltic Sea to Germany (bypassing Ukraine); further sanctions on the Russian financial sector which could exacerbate problems for the already challenged AO; and a ban on Russian sovereign debt as an investment.  

Sberbank of Russia – Ukraine Risks Rising

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul><li>EM Bank shares have lifted off their recent lows, as investor sentiment turns in favour of value in general, and attractive value EM assets in particular</li></ul><ul><li>We highlight 5 EM banks we see as standouts on our bank screens, and in which EM investors have reduced weightings throughout 2020, and are likely to rebuild positions going forward; <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>, <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a>, <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a> and <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a> </li></ul><ul><li>We like <a href="https://www.smartkarma.com/entities/shinhan-financial-group-adr" target="_blank" data-smartkarma-citation="entities:4534:1" rel="noopener">Shinhan Financial Group Adr (SHG US)</a> and <a href="https://www.smartkarma.com/entities/bank-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:656:1" rel="noopener">Bank Of China Ltd (H) (3988 HK)</a> as other positive re-rating plays, based on attractive valuations and sound balance sheet metrics</li></ul><ul><li>We also believe that EM bank core holdings throughout the pandemic crisis, such as <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> and <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a>, may, in valuation terms, now be more exposed to negative rotation</li></ul><ul><li>Risks to our view include a worsening of sentiment towards EM equities and banks in particular, due to a deterioration in the pandemic outlook and a worsening of the macro-economic outlook for emerging markets</li></ul>

EM Bank shares have lifted off their recent lows, as investor sentiment turns in favour of value in general, and attractive value EM assets in particularWe highlight 5 EM banks we see as standouts on our bank screens, and in which EM investors have reduced weightings throughout 2020, and are likely to rebuild positions going forward; Credicorp Ltd (BAP US), Banco Do Brasil Sa (BBAS3 BZ), Grupo Financiero Banorte-O (GFNORTEO MF), Sberbank of Russia PJSC (SBER RM) and Turkiye Garanti Bankasi As (GARAN TI) We like Shinhan Financial Group Adr (SHG US) and Bank Of China Ltd (H) (3988 HK) as other positive re-rating plays, based on attractive valuations and sound balance sheet metricsWe also believe that EM bank core holdings throughout the pandemic crisis, such as Kotak Mahindra Bank (KMB IN) and Bank Central Asia (BBCA IJ), may, in valuation terms, now be more exposed to negative rotationRisks to our view include a worsening of sentiment towards EM equities and banks in particular, due to a deterioration in the pandemic outlook and a worsening of the macro-economic outlook for emerging markets

EM Banks: Screening for Value and Resilience

<ul>
<li>EM active managers are running their largest ever overweight in Russian equities, however, absolute weights are drifting lower.</li>
<li>Buying in out-of-benchmark <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> has been the driver of the increased overweight. </li>
<li>A retreat from the Energy majors was the cause of the fall in absolute Russian fund weights.</li>
<li>EM active managers are now more exposed to Communication Services stocks then they are Energy stocks for the first time in history,</li>
<li>
<a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a> is still the most widely held stock in Russia, however managers have trimmed exposure. </li>
<li>Ownership in <a href="https://www.smartkarma.com/entities/magnit-pjsc" target="_blank" data-smartkarma-citation="entities:24632:1" rel="noopener">Magnit PJSC (MGNT LI)</a> continues to rise from a very low base.</li>
</ul>Taken from our Global Emerging Markets analysis, covering 243 active strategies with combined AUM of $360bn.


EM active managers are running their largest ever overweight in Russian equities, however, absolute weights are drifting lower.
Buying in out-of-benchmark Yandex (YNDX US) has been the driver of the increased overweight. 
A retreat from the Energy majors was the cause of the fall in absolute Russian fund weights.
EM active managers are now more exposed to Communication Services stocks then they are Energy stocks for the first time in history,

Sberbank Of Russia Pjsc (SBER LI) is still the most widely held stock in Russia, however managers have trimmed exposure. 
Ownership in Magnit PJSC (MGNT LI) continues to rise from a very low base.
Taken from our Global Emerging Markets analysis, covering 243 active strategies with combined AUM of $360bn.

Russia:  Record Overweight, But Old Guard Losing Ground.

Russia

Sberbank of Russia PJSC attracts deposits and offers commercial banking services. The Bank offers time deposits, corporate banking, securities brokerage, credit, foreign exchange services, and sponsors credit cards.

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Sberbank of Russia PJSC (SBER RM)

Russia: Overweight Risk as Ukraine Tensions Rise

Russia is the largest overweight in EM as Ukraine tensions rise. Sberbank, Lukoil and Yandex are the largest stock overweights and the key risks...

Steven Holden

Sberbank of Russia – Dealing With New Sanctions

SBERBANK: The Biden administration announced a series of sanctions against Russia, which leaves the country on the verge of being tossed out of...

Thomas J. Monaco

Sberbank of Russia – Ukraine Risks Rising

SBERBANK: After an uneasy stalemate, Russia recently concluded major exercises. Ceasefire negotiations have broken down. SberBank's Ukraine...

Thomas J. Monaco

EM Banks: Screening for Value and Resilience

We highlight 5 EM banks we see as standouts on our bank screens, Credicorp, Banco do Brasil, Banorte, Sberbank and Garanti. EM investors reduced...

Victor Galliano

Russia: Record Overweight, But Old Guard Losing Ground.

EM active managers are running their largest ever overweight in Russian equities. Buying in out-of-benchmark Yandex has been the key driver, but a...

Steven Holden

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