Shares with commercial stuffing – Newspaper Kommersant No. 210 (7411) dated 11/14/2022

The isolation of the Russian stock market is pushing management companies (MCs) to more actively use local financial instruments. MCs have begun offering commodity funds that invest in commodity futures traded on the Moscow Exchange. Such investments protect against rising inflation, but in the long term they may be inferior to the dynamics of the shares of mining companies.

Management companies are expanding their product line at the expense of mutual funds for commodity assets, a Kommersant survey showed. MC Pervaya offered an interval mutual fund for settlement futures traded on the Moscow Exchange for commodity contracts: oil, gas, gold, silver, platinum, palladium, wheat. The fund is available to qualified investors. “As new contracts for commodity assets are released, we will add them to the portfolio if liquidity allows,” they explained. East-West Management Company is studying the possibility of launching a fund for a group of different commodity futures. “The possibility of creating a closed-end mutual fund for real non-exchange goods is being considered,” said Alexander Lavrov, director of investment at the company.

Such funds are unique not in their focus on the commodity market, but in their breadth of assets. The first commodity IPIFs appeared in the Russian Federation in 2009, but they were focused only on precious metals: gold, silver, platinum, palladium. Then they were all converted into open-ended funds, and the metal was replaced by foreign ETFs. According to Ivan Lavrinenko, Investment Director at RB Capital, with a working global infrastructure, there was no particular need for local products.

With the introduction of sanctions and the blocking of NSD’s accounts, the need to create local commodity funds and infrastructure has increased dramatically. At the end of August, wheat futures began to be traded on the stock exchange for the first time (see Kommersant dated November 2). “We want to use this experience to create derivatives for other grain crops, oilseeds,” the Moscow Exchange said. They also look at other traditional exchange commodities that are not represented on the Russian market, and also study the issue of new derivatives for oil and oil products. “There are plans to attract additional market makers to increase the instant liquidity of wheat futures, which will allow working with large volumes,” the exchange explained.

The commodity market and funds focused on it may be of interest to investors as a hedge against inflation. According to the IMF, in 2022 global inflation will be 8.8% against 4.7% a year earlier. “The more exchange commodities included in the fund, the closer the management result will be to global inflation,” notes Vladimir Tsuprov, Managing Director for Investments at TKB Investment Partners. An alternative anti-inflationary tool can be inflationary OFZs, as well as the iShares TIPS Bond ETF launched on the St. Petersburg Exchange. But the former only protect against domestic inflation, while the latter has infrastructural risks, since the fund is American and, if sanctions are extended, it may be blocked.

However, such investments do not generate income in the form of dividends or coupons. According to Vladimir Bragin, Director of Financial Markets and Macroeconomics Analysis at Alfa Capital Management Company, although commodity assets tend to rise in price, this growth historically does not outperform inflation and is not always stable. In addition, as Artem Mayorov, director of the asset management department at Ingosstrakh-Investments Management Company, notes, most derivatives in the Russian Federation are based on international benchmarks (Brent, Henry Hub, etc.), and their existence depends on opportunities for arbitrage with foreign markets.

In this regard, some managers are studying the issue of launching funds for the shares of mining companies. The launch of such a fund is being studied in the Criminal Code of the PSB. According to Andrey Rusetsky, Managing Director for Investments of the company, investments in shares of promising Russian mining companies will give the fund exposure to such commodities as oil, gas, precious metals, and coal. At the same time, he does not see “an urgent need for clients to launch a fund based on futures, including commodities.”

Vitaly Gaidaev