The fund was created in December 2006 from the conversion of the New Russia fund, which launched in 1997. The fund is managed by Barings’ Head of Eastern Europe, Middle East and Africa Equities Dr Ghadir Abu Leil-Cooper. She has 12 years’ investment experience and also runs the Baring Eastern Europe Fund.
Leil-Copper regards Russia as a good investment opportunity because it is benefiting from a strong demand for commodities. As well as oil and gas, Russia supplies commodities such as nickel, copper, palladium and iron ore to meet demand particularly from China.
Demand for commodities, including oil, has allowed the Russian government to pay its debt early and has fuelled development in the domestic economy, creating opportunities in the banking, telecoms, utility and real estate sectors. Consumer demand for goods such as computers and mobile phones is also increasing as more people become middle class.
The strength of the domestic economy is Barings’ main investment theme and this is reflected in the banking and mobile telecoms sectors. Strong demand for office and residential properties in Russia is also creating opportunities within Russian real estate.
Russia has just started to become a more open-market economy and companies are improving business practices such as international accounting standards and improvements in shareholder reporting.
In Barings’ view, corporate restructuring his is helping to create a stable business environment that has attracted international companies such as Ikea and Starbucks. The government is also looking to improve the country’s infrastructure through increased public spending on the back of strong oil revenues.
The Baring Russia fund focuses on attractively valued companies. It favours companies that are likely to benefit from ongoing reform, particularly within the utility sector. Russian companies that have a global competitive advantage are also sought after. Examples are companies in the oil and gas and metals sectors as they are increasing production and reserves at lower costs compared to their global competitors.
However, Russia is still an emerging market economy and the fund is likely to be more volatile than funds investing in developed markets.