What income did mutual funds bring in June 2023

June was another successful month for the collective investment market. The best performance was shown by funds with a high proportion of US stocks, which benefited from both the growth in dollar prices and the depreciation of the ruble. The weakness of the Russian currency, combined with high dividends from large companies, is also supporting the Russian stock market, led by oil companies. Managers are counting on the continued growth of the broad Russian stock market, and in the case of investments in foreign assets, they are advised to take into account infrastructure risks.

Overseas assistance

The first month of summer pleased investors of retail mutual funds. According to Kommersant’s estimate based on Investfunds data, in June 2023, out of 268 open-ended and exchange-traded funds, only 14 mutual funds experienced a decrease in the value of a share. At the same time, the value of a unit increased by more than 5% for 109 funds, while for the top 39 it was 10–21%. In general, over the first half of the year, all large funds showed an increase in the value of a share, while almost every third mutual fund had an income of more than 30%, and for the top 12 it was 53-83%.

The best results continued to show funds focused on investing in shares of foreign companies.

According to Investfunds, the value of shares in such mutual funds increased by 8-21% against the background of the rise in the US stock market. Last month, the S&P 500 rose almost 7% to 4,450 points, the highest since April 2022. This was facilitated by the relief of the banking crisis, as well as the installation of a new ceiling on the US national debt.

The effect of the appreciation of foreign assets was reinforced by the growth of the dollar on the Russian market, which added more than 10%, reaching 89.6 rubles/$ by the end of the month. Foreign exchange revaluation also became the main driver of the increase in the value of units of Eurobond funds, replacement bonds and bonds in Chinese yuan. According to Investfunds, shares of such funds have risen in price by 6-11% over the past month.

Bet on domestic

In June, Russian equity funds also brought high profits to shareholders. According to Investfunds, the value of their shares increased by 3-10%, while the best dynamics among them was shown by funds of oil and gas companies. “Oil producing companies are one of the main payers of dividends. Their shares were supported by the approaching dates of dividend cut-offs,” says Ivan Lavrinenko, investment director at RB Capital.

At the same time, ruble-denominated government bond funds for the most part provided income of less than 1%. And the leaders of growth among conservative funds were mutual funds of corporate bonds. At the end of the month, the RUCBITR corporate bond index of the Moscow Exchange increased by more than 0.8% to 507 points. At the same time, the RGBITR government bond index fell 0.3% to 626 points. “The Russian government bond market is under pressure due to growing expectations of a key rate hike by the Bank of Russia,” said Nikolai Ryaskov, adviser to the general director of UK PSB.

The Central Bank is pushing for such a step by rising inflationary expectations against the backdrop of a significant increase in producer prices (in May they rose by 3.7% compared to April). “The weakening of the Russian currency, which threatens to increase imported inflation, also speaks in favor of such a decision by the regulator,” notes Ivan Lavrinenko. Additional pressure on the government debt market, especially in terms of long-term securities, is exerted by the constant supply at auctions of long OFZs with a fixed coupon. In the second quarter, the Ministry of Finance attracted 480 billion rubles through the sale of such securities, that is, more than half of the total volume of placed securities in this period.

Currency prospects

Market participants surveyed believe that upside potential remains in Russian equity funds. Ivan Lavrinenko draws attention to the following factors: a low valuation in multiples relative to the average values ​​of previous years, a dividend yield that significantly exceeds bond yields in a wide range, as well as the weakness of the Russian currency. “Against the background of the weakening of the ruble, funds that include securities of exporters may look attractive,” notes Mr. Ryaskov.

At the same time, portfolio managers evaluate investments in foreign exchange assets with great caution.

In particular, here investors should take into account the increased infrastructure risks when investing in Russia. The exception is assets that are entirely serviced in the Russian infrastructure. These include gold, replacement and yuan bonds, Eurobonds of Russian issuers in NSD.

When investing in replacement bonds, it is worth considering the significant overhang of such securities, which put pressure on their value.

“This is facilitated by the high rates of repeated substitutions of Gazprom Capital issues, expectations of substitutions of new issuers, as well as the Finance Ministry’s plans for a possible replacement of sovereign Eurobonds,” notes Nikolai Ryaskov. According to him, such an overhang enables buyers to fix a relatively high yield in high-quality instruments up to 14% per annum in US dollars.

Vitaly Gaidaev