JPMorgan Russian becomes hugely expensive cash fund after Kazakhstan exit
JPM Russian Securities (JRS ), the UK’s only listed Russia fund, is sitting on 93% cash after offloading its holdings in Kazakhstan in the past two months, a move that underlines the apparent massive over-valuation of its shares which stand at a massive premium of over 100% to their much-reduced asset value.
Kazakhstan, which has close economic ties with its neighbour Russia, had represented the bulk of the dwindling equity value in the investment trust following the sales and writedowns of shares in Russian companies after the country’s invasion of Ukraine on 24 February.
A previous update showed as of 12 April 69% of the trust’s net asset value (NAV) was held in Kazakhstan stocks, including Halyk Bank, which had accounted for 39% of the fund at the end of March. According to a statement this week, fund managers Oleg Biryulyov and Habib Saikaly have sold these and parked 93% of JRS’s assets in US money market funds.
The latest update shows that at 27 May the trust’s fair value had slumped to £17m, a massive destruction in value for a fund that boasted net assets of £397m last October.
JPMorgan Russian shares have plunged 87% this year, the worst performance of any London-listed investment company, as the portfolio has been battered by the impact of the extraordinary sanctions imposed by the international community on Russia for its three-month war against Ukraine.
Just 6% of the trust’s assets remains in Moscow-listed shares and just over 1% in depositary receipts and other Russian securities on other international stock exchanges. This implies the fund managers have taken advantage of the limited reopening of Moscow’s Moex exchange at the end of March to make further reductions in their Russia positions, although continued declines in their shares price may also be responsible.
Previously, at 29 April, the trust held nearly 11% in five stocks in Moex, most of it an 8.3% weighting to aluminium miner UC Rusal. Sberbank, which had been its second largest position at 13.1% before the invasion, accounted for only 1.1%. This week EU leaders agreed to eject Russia’s biggest bank from the Swift international payments system, hobbling its ability to operate outside the country.
A further 1.2% was held in US-listed shares, or ADRs, of Gazprom. Russia’s gas giant had been the fund’s largest holding at 20.5% of assets before the war.
Despite the huge falls in its holdings, shares in JPMorgan Russian closed at 87.2p yesterday, a premium of 104% over their underlying net asset value of 42.8p on Monday.
Shareholders in the now £36m minnow have continued to sell where they can into the apparent valuation bubble. City of London Investment Management, a leading investors in closed-end funds, has cut its stake in the trust to 13.75% from 26% in early March.
As it has throughout the crisis, the board reiterated the uncertainty over the portfolio’s valuation.
‘While the company has applied a fair value against some of the above mentioned investments, there is no certainty that any value will be achievable from them over the short, medium, or even long term due to the factors arising following the imposition of additional sanctions against Russia,’ it said.