Replacement protection – Finance – Kommersant
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The weakening of the ruble is pushing investors to look for protective instruments. To hedge such risks in the collective investment market, they traditionally choose precious metals funds, as well as replacement and yuan bonds. Such investments, in addition to currency revaluation, also bring high coupon income. However, you have to pay for the work of the management company and its agents, and in the short term, their remuneration can significantly reduce the income of investors.
Currency protection
Last week, the rise in the dollar rate on the Russian market slowed down. According to the results of Friday’s trading, the rate amounted to 81.74 rubles, which is only 62 kopecks. higher than the previous week’s close. At the same time, the growth of the US currency continues for the third month in a row. During this time, it has risen in price by almost 13 rubles, and in only two weeks of April – by more than 4 rubles. This is facilitated by a decrease in foreign exchange earnings due to restrictive measures against Russian oil and petroleum products, as well as increased demand for foreign currency from importers.
In such conditions, the demand of individuals for financial instruments that protect against the depreciation of the ruble is growing. These include, among other things, mutual investment funds focused on investments in foreign exchange assets – precious metals, securities of foreign companies, Eurobonds. A group of funds focused on Eurobonds, despite the blocked bridge between Euroclear and NSD, are actively developing due to the issuance of replacement bonds by Russian companies, as well as bonds denominated in yuan.
Offers in excess
Such funds are in the lineup of at least six large management companies. The bulk of the assets of the funds includes both Eurobonds traded in Russia, as well as replacement and yuan bonds. At the same time, only MC Pervaya has a fund that focuses exclusively on yuan bonds. According to the results of the first quarter, the shares of funds of foreign currency bonds brought the shareholders an income of 4-11%, which is largely due to the growth of the dollar. “By purchasing fund units, the client receives a wide diversification of investments, unlike independent investments, which require the formation of a portfolio with the diversion of larger amounts for investments,” analysts of the investment department of RSHB Asset Management note.
Market participants note that in addition to protecting against the fall of the ruble exchange rate, the currency bonds included in the funds have a high current yield, which reaches 6–8% per annum.
However, RSHB Asset Management analysts point out that, in contrast to previous periods, the spread to ruble bonds of comparable duration and credit quality is not very large. Thus, the yield of OFZ with maturity of 2–3 years is 8.7–9.7% per annum. This anomaly is related to the oversupply of replacement papers on the Russian market.
Taking into account the fact that the replacement of Eurobonds can take place in stages, it is worth considering the volatility of such securities when investing. In particular, Gazprom, the leader in issuing replacement bonds, replaced about 35% of the total Eurobond issue in some issues. “This potentially means that as more issues are replaced, new participants will appear on the market who are willing to sell them at a higher price in the Russian perimeter. An increase in the number of sellers at the moment negatively affects the cost of replacement bonds, which opens up an opportunity to fix an attractive currency yield to maturity of the paper,” notes Ivan Panov, senior analyst at Pervaya Management Company.
Management is not free
When choosing funds, you should also pay attention to the remuneration charged by the management company. In the case of conservative funds, this parameter is very important, as it can greatly reduce the final investment result.
Thus, in the case of Eurobond funds and replacement bonds, the remuneration is 0.9-1.5%, while for the RMB bond fund only 0.3%.
Such a significant difference may partly be due to the fact that the yuan mutual fund is an exchange type fund, the commissions for which are traditionally lower than for open mutual funds, which are other funds.
When buying shares of open-ended funds in bank branches or offices of the management company, it is worth considering the costs in the form of surcharges, which can reach 1.25%. For some companies, when buying through remote sales channels of a related bank or with investments of more than 1.5 million rubles. commission is cancelled. In the case of redemption of such units, a discount of up to 2-3% is usually set. Usually, if you own more than three years, the discount is reset to zero.
Waiting for new names
In general, market participants expect the list of foreign currency bond funds to expand, which will be facilitated by an increase in the number of issuers issuing yuan and replacement bonds.
An active placement of securities in Chinese currency will be facilitated by the general reorientation of the economy to the East, while for bonds in “unfriendly” currencies – legislative incentives.
At the end of 2022, the Central Bank published a document in which it recommended that financial market participants use the substitute bond mechanism to fulfill obligations under Eurobonds. “Many Russian issuers have not yet taken advantage of the substitution practice, with a high probability we will see their attempts to replace Eurobonds in 2023. This opens up the opportunity to purchase foreign securities of certain high-quality Russian issuers at attractive prices,” notes Ivan Panov.
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