Investing in Russia: risky but rewarding?
The only investment trust focusing on the world’s cheapest stockmarket is worth a look, says Max King.
It is hard to think of a more contrarian investment than Russia. Not only is President Vladimir Putin the bête noir of Western governments, but hydrocarbons account for 40% of the market. As a result, Russia, according to Priyesh Parmar of Numis Securities, “is the cheapest major global equity market, trading on a historic price/earnings ratio of just 9.5 and offering a yield of around 5%”. The only investment trust specialising in Russia, the £300m JPMorgan Russian Securities (LSE: JRS), is on a 12% discount to net asset value (NAV) and yields 4.6%.
Its manager, Oleg Biryulyov, is upbeat. His portfolio has a 72% overlap with the benchmark index and is priced, he says, on 7.9 times forward earnings and a price/book ratio of 1.2. The forward dividend yield is 7.6%, yet annual earnings growth is expected to average over 7% in the next five years. The state’s budget is based on a $40-per-barrel oil price so, with a price above $60, finances are healthy. He does not expect political change nor any shift in the regime of Western sanctions. “The market is [at] its historic high but is still very cheap.”
It is hard to see why the West singles Russia out as public enemy number one. It is less of a military threat to its neighbours than China, faces no accusations of genocide, and the state is significantly less repressive and intrusive. Putin enjoys provoking the Western establishment but is broadly popular at home. Internal political dissent is not tolerated but there is no guarantee that any alternative government would be an improvement.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Governance has improved
Biryulyov says that “the correlation of the Russian market to commodities is declining”, but it is clearly still significant. “A poor environmental profile is inevitable,” but he seeks to compensate through a focus on sound corporate governance. For example, Gazprom, the largest holding at 15% of the portfolio, was “uninvestable” a few years ago. Since then, improved capital allocation and a shift from being run as a nationalised to a commercial company has boosted cash generation and led to a likely rise in dividends from 40% to 50% of earnings.
Tom Holland of Gavekal Research points out that “if all the world’s cars were to go electric tomorrow, all oil-fired power stations were decommissioned and all oil-fired boilers... scrapped, the world would still need 66 million barrels of oil per day[mbpd] – two-thirds of 2019’s demand – to propel its trucks, ships and planes, and to feed its industries”. Oil (and gas) will not fade into irrelevance for decades, yet Western firms are running away. Russia looks the best place for investors to benefit from the cash generation of a declining industry.
Balancing growth and value
JRS also has large holdings in Lukoil and Rosneft, and in miners, with Norilsk Nickel worth 11% of the portfolio. Two steel producers account for 6% and total commodity exposure is nearly 60%. With giant bank Sberbank comprising 13%, this implies a value style but Biryulyov has deftly switched between value and growth. In 2020, growth companies Yandex (Russia’s Google), EPAM (a Belarussian IT outsourcer), and Detsky (a children’s retailer), were the best performers.
The market is extremely volatile. The trust’s NAV fell by 46% in 2014 but rose by 45% in 2019. This year has started well but there should be far more to go for. Thereafter, who knows? Russia’s domination by Mafia-style oligarchs does not encourage entrepreneurs – hence its modest rate of economic growth. Capital that could be invested at home leaves the country so the small and midcap segment of the market is undeveloped. That may change in time to make JRS a great long term investment but, for now, investors can focus on the shorter term.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
How to boost your pension pot as 35% of UK over 50s face huge retirement savings gapOver 50s are facing a later life with little to no funds - but there are steps you can take now to boost your pot.
-
Zoopla: House sales fall for first time in two years as buyers wait for Autumn BudgetThe average price of a house in September was £270,000, down £1,000 from August as the housing market’s Christmas slowdown came early, Zoopla says
-
Yoshiaki Murakami: Japan’s original corporate raiderThe originator of Japanese activism, Yoshiaki Murakami, was disgraced by an insider-trading scandal in 2006. Now, he's back, shaking things up
-
Cash in on the vast growth potential of the companies electrifying the worldOpinion Martin Todd, portfolio manager, head of sustainable equities, Federated Hermes, highlights three electrification companies where he'd put his money
-
Galliford Try has firm foundations for strong growthBuilder Galliford Try has a finger in a wide range of pies, notably important work in the public sector
-
Card Factory is a stand-out small-cap going cheapIn a digital world, we still value the personal touch. That’s good news for Card Factory, whose unique business model is suited to weather all economic storms
-
8 of the best smallholdings for sale nowThe best smallholdings for sale – from a medieval cross-passage farmhouse in Taunton, Somerset, to a former farmhouse with an orchard in the Welsh Marches
-
How much gold does China have – and how to cash inChina's gold reserves are vastly understated, says Dominic Frisby. So hold gold, overbought or not
-
How to invest in undervalued gold minersThe surge in gold and other precious metals has transformed the economics of the companies that mine them. Investors should cash in, says Rupert Hargreaves
-
Debasing Wall Street's new debasement trade ideaThe debasement trade is a catchy and plausible idea, but there’s no sign that markets are alarmed, says Cris Sholto Heaton