Although the fund has seen a change of management, the investment style has stayed the same
The Baring New Russia fund was launched in 1997 as an actively managed portfolio. Since its inception, the fund has changed managers but its investment strategy has remained the same.
The original manager of the fund was Rory Landman. When he left in June 2000 to join Thames River Capital, the management of the portfolio was taken over by Ghadir Abu Leil-Cooper and Klaus Bockstaller, who still run the fund today.
Although the fund had a change of managers, the style has remained unaltered since its inception.
The strategy used for the fund is a combination of top-down and bottom-up styles. However, the bottom-up investment element is considered the most important factor when choosing a stock for the portfolio.
Leil-Cooper says there are five investment criteria to consider when choosing stocks for the portfolio. These are growth, liquidity, currency, management and valuation.
The company must be growing at above market consensus. The managers examine the quality of earnings; pace of growth and duration; competitive position; and opportunities and catalysts for future growth.
For liquidity, two areas are considered. Firstly, the balance sheet of a company is examined to see how liquid it is, whether or not the company has a high cash flow and if it can pay dividends. The second area to be examined in liquidity is if owning shares in the company will impact the price. A company must also be above $50m in market capitalisation or have the potential to be above it.
Under currency considerations, Leil-Cooper looks at whether or not the rouble is appreciating or depreciating. When the rouble is appreciating, the fund invests in companies focused on putting their money into domestic- orientated markets. When the rouble is depreciating, the portfolio invests in companies focused on exporting.
Companies must obviously have good corporate governance and shareholder value but this is especially true in this region because investors generally have access to less reliable and less detailed information than in respect of investments in Western European countries and the US. This includes general economic data and information concerning the operations, financial results, capitalisation, financial obligations, earnings and securities of specific enterprises. It is important to know the company has good management systems in place.
In the valuation criteria, the price of Russian companies are compared with stocks in other emerging market countries. The price must be on a par to other companies in their peer group.
Companies chosen in the portfolio are not considered high volatility stocks for the region. There are two types of companies chosen for the portfolio ' first and second tier. The first are blue chip type companies. The second are companies that are not high profile but have the potential to be a first-tier company.
The portfolio has between 18-20 stocks in it with a 50% change over rate per year. To choose what will be included in the portfolio, the team has a meeting once a week and look at stocks to see how they have performed. If the stock is 15%- 20% above or below the benchmark, they have to think quite seriously about whether they should sell it. The benchmark the fund uses is the CSFB Growth Index.
Usually a stock is not completely sold out the portfolio but either added too or reduced.
In 1997 when the fund was launched, the portfolio had been invested in regional telecom stocks.
However, these stocks took a punishment following the devaluation crisis in Russia. Although some of these stocks were sold during this period it was only if they did not have any chance of recovery. The fund under performed following the opening of it.
Following the devaluation of the rouble in August 1998, the portfolio changed from being a closed-ended fund to open-ended. This was so investors could get out if they wished.
Around a third of the investors pulled out and the cash position increased in the portfolio.
After the devaluation, money was invested in exporting companies such as oil and gas. The portfolio has been positive on oil and gas since the beginning of 2000.
There was a strong recovery in the oil price from lows of around $10 per barrel in February 1999 to above $25 by November, improving cash flows to oil companies and to the federal budget.
The devaluation proved positive for oil and metal exporters. The dollar price increase in these commodities has generated strong cash flow and has improved capital expenditure.
The fund has outperformed since the devaluation.
Since the end of 2002, the portfolio started to invest in second-tier type companies. This includes investing in a steel company, which although not a high profile stock is expected to become a first tier.
The minimum investment is $25,000. The fund is domiciled in Luxembourg and is available through intermediaries. Annual management charge is 1.5%.
about the manager: ghadir abu leil-cooper
Ghadir Abu Leil-Cooper joined Baring Asset Management in February 1997 as a senior investment analyst. She became an investment manager on Baring's global emerging markets equity team during the first quarter of 2000, with responsibility for research and stock selection with in the emerging Europe, Middle East and Africa region.
She joined the company from BZA Investment Management, where she specialised in Middle East, North Africa and Latin America.
Leil-Cooper has a Bsc and a PH.D in theoretical physics from Durham University and is fluent in Arabic. She specialises in Russia, Middle East and Africa.
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