fleming russia to become an invesment trust to reflect Russia's size and growing maturity
JP Morgan Fleming is to relaunch its Fleming Russia Securities Fund as an investment trust to invest solely in Russian securities ' the only one listed in the UK.
Trust co-manager Mark Robinson said Russia's size and increasing maturity made it worthy of a specifically focused trust.
'Russia is a very large country and is therefore likely to have more significant opportunities for equity investors over the next 10 or 20 years than the markets of central Europe, which are also transforming, but are likely to be subsumed within Europe while Russia will remain distinct,' he said.
Robinson noted the Russian stock market was gradually maturing as the economy moved further towards a free market and away from the old command system.
'The reforms that we have seen in the past three years in the area of tax and lessening bureaucracy have been welcomed by markets and have been one of the major drivers of performance in Russia,' he said
'As capitalism unfolds, we will start to see sectors that are characteristic of capitalism appearing, such as the financial, services and consumer sectors ' which have been absent from the Russian stockmarket before now,' he said. Despite the uncertainty of global markets, Robinson added investors are not hesitant to invest in Russia.
'Russia and Eastern Europe have decoupled from global markets ' they have outperformed quite substantially in recent years, and so we have seen some interest in eastern and emerging Europe, in contrast to what has been happening in the rest of the world,' he said.
Russia is also the world's second largest oil producer, which enhances its geopolitical role in the current global climate and allows it better leverage in trade negotiations, which is another potential gain for holders of Russian equities.
The new JPMorgan Fleming Russian Securities trust will be the rollover vehicle for Fleming Russia, a Jersey-domiciled, Irish-listed fund denominated in US dollars.
JPMF head of closed-end funds David Barron said bringing the trust onshore will make it more accessible to mainstream investors and capitalise on the growing appeal of the region.
It will also allow shareholders a cash exit after a significant bloc of shareholders, including a large hedge fund unsuccessfully voted against a scheduled continuation resolution in January. Shareholders with more than 7.5% of Fleming Russia will also be able to take an in-specie distribution of the stock portfolio. Discount for the cash and in specie option would be 6%, Barron said.
Fleming Russia had the ability to invest up to 10% of its portfolio into the former Soviet Commonwealth of Independent States, but never made use of it, preferring to concentrate on Russia.
Despite changing the mandate to Russian-only shares, the only changes to the legacy portfolio once it is brought onshore will be to reduce two of the current holdings to below the 15% LSE limit.
Robinson said the increasing diversity of the Russian market means the 15% limit on shareholding will not be a significant obstruction in the future as the trust will no longer need to concentrate on just a few large holdings.
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