JPMorgan Russian soars on move to become regional emerging markets fund

JPMorgan Russian Securities shares have rallied after the distressed investment trust said it was looking to expand its geographical remit in a bid to survive the existential crisis caused by Russia’s invasion of Ukraine.

JPMorgan Russian Securities (JRS ) shares have rallied after the distressed investment trust said it was looking to expand its geographical remit in a bid to survive the existential crisis caused by Russia’s invasion of Ukraine.

The West’s forceful response to the invasion in February, cutting out Russian companies from financial markets and preventing overseas investors from trading on the Moscow stock exchange, receiving dividends from its stocks or getting prices on London or New York-listed Russian securities, had ‘effectively frozen’ the portfolio and forced the 28-year-old closed-end fund to write its holdings down to zero.

Half-year results last week showed net asset value (NAV) of the UK’s only listed Russia fund plunged 95% in the six months to 30 April. With no prospect of a reprieve in sight, the board said it was requesting authorisation from the Financial Conduct Authority (FCA) to amend its investment objective to invest in emerging Europe, including Russia, and the Middle East and Africa.

Eric Sanderson, who replaced Gill Knott as chair in March, said JRS could continue as a going concern for several years but warned that sticking to Russia was not a realistic option.

Widening the mandate would enable the fund to preserve as much value in the company for shareholders as possible, he said.

‘If current levels of public concern in much of the West about the humanitarian crisis unfolding in Ukraine continues, many Western governments will be under pressure to permanently and significantly reduce their reliance on Russian energy supplies. This, together with the continuing exclusion of Russia from Western financial systems may destabilise and isolate Russia to such an extent that holding investments in the country becomes prohibited and/or unviable,’ he added.

‘If FCA approval is provided, the board will propose a resolution at a forthcoming general meeting of shareholders,’ he said.

The proposal has seen the shares soar 29.8% this week, up 18% or 15.8p today, as plucky investors bet on getting in at a low price despite Sanderson’s caution about the uncertainty facing the investment company.

The rally has extended the shares’ surprisingly large premium that has developed as ‘significant demand’ from individual investors has offset an exodus of institutions who have halved their stake from 70% to 36%.

City of London Investment Management, a big investor in undervalued closed-end funds, had cut its stake but remains the largest shareholder with 12.8%, according to Refinitiv data.

The shares closed today at 101p, putting the trust on a 123% premium to the latest NAV per share of 45.4p

If successful, the £34m closed-end fund, which is still managed by Oleg Biryulyov and Habib Saikaly at JPMorgan Asset Management, would go head-to-head in competition with the £66m Barings Emerging EMEA Opportunities (BEMO ), a former emerging Europe fund that widened its remit two years ago.

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