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Americans who invest in mutual funds and exchange-traded funds have largely been insulated from financial exposure to Russia amid its conflict with Ukraine.
The reasons are twofold: First, fund managers who buy Russian debt or Russian company stock generally do so in small quantities; second, funds that buy these securities (which are generally focused on the developing world) are often a fringe part of investors’ overall portfolios.
“The reality is most people in a 401(k) might have a really tiny exposure to Russian stocks and/or bonds, probably under 1%,” said Karin Anderson, director of North American fixed income strategies at Morningstar, which tracks data on mutual funds and ETFs.
However, there are a handful of stock and bond funds with much bigger stakes in Russia, according to data provided by Morningstar Direct. Some took a big hit in recent days, due to Western sanctions aimed at crippling Russia’s economy that may be ratcheted up even further.
The 10 stock funds with the biggest exposure allocate at least 9% of their assets to Russia, according to Morningstar data. The two largest — the iShares MSCI Russia ETF and the VanEck Russia ETF — hold 95% and 94% of their assets in Russian companies, respectively, according to Morningstar.
The most-exposed bond funds allocate to Russia in much smaller shares than stock funds. The top 10 hold roughly 4.5% to 8% of their total assets in Russian debt, according to Morningstar. The Western Asset Macro Opportunities mutual fund has the largest allocation, about 8.4%, it said.
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The stock and bond funds are a mix of actively managed and index funds. The latter try to replicate a particular stock or bond benchmark, whereas fund managers in the former category have more latitude to select securities according to a particular fund strategy.
Importantly, the Morningstar data reflects the most recent publicly available data on fund holdings (as of Dec. 31 or Jan. 31, depending on the fund). Active fund managers may have since altered their holdings in Russian stock and debt given the invasion and resulting economic sanctions.
For example, disclosures peg the GQG Partners Emerging Markets Equity Fund’s Russia stock allocation at more than 16% of holdings. However, the firm on Friday said it only had about 3.7% of assets exposed to Russian stock, according to Morningstar.
To a certain extent, a reduction in a fund’s Russia stake will occur naturally if the value of those holdings declines. (In other words, active decisions from fund managers may not be primary cause.)
Benchmarks that incorporate Russia may ultimately remove the country, effectively stripping country exposure from certain index funds. An official at index provider MSCI hinted at that eventuality on Monday, for example, citing an inability to transact in Russian securities.
