Russia:  Overweight Risk as Ukraine Tensions Rise

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.