Are Russian stocks part of your portfolio?
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Given the ongoing war in Ukraine, you may be wondering if you have Russian stocks in your portfolio and, if so, what does that mean? Here’s what you need to know.
Russian stocks do not trade in the United States
In most cases, Russian stocks cannot be traded in the United States at this time. Between U.S. sanctions meant to punish Russia for its invasion of Ukraine and Russian government actions meant to be retaliatory, U.S. investors can’t buy Russian stocks or mutual funds made up mostly of Russian stocks .
If you currently have Russian stocks — stocks — in your portfolio, you can only sell those positions to investors outside the United States, based on an executive order issued by President Biden in June. Shares issued in Russia by Russian companies are traded through certificates of deposit (DRs) and the Russian government no longer allows them to be traded in this manner in the United States.
If you have a 401(k) or other employer-sponsored retirement account, you likely have a limited number of choices for investing your money. Most 401(k) investment choices are relatively safe and primarily focused on US positions.
Most of these accounts invest in mutual funds, and most mutual funds have small Russian positions, if any. Therefore, you probably have a minimum position in Russian stocks, if any.
For example, consider two of the most popular target date funds often used in employer-sponsored plans. Target date funds adjust to allocate assets based on when the employee is expected to retire.
These funds maintain the same investments over time, but change the amount of each position, moving to safer investments as the employee nears retirement. Thus, asset allocation would shift from equity funds to bond funds as the employee ages.
Fidelity’s target date funds have an average exposure to Russian stocks of 0.62%, according to Morningstar. Vanguard’s target date funds have even less – an average of 0.22%. Each of these funds has less than 0.1% exposure to Russian bonds. This means that less than one percent of the investments in these funds are linked to Russian companies.
Some emerging market mutual funds and ETFs will have slightly higher exposure to Russian positions, but the exposure is still not significant. Some emerging market funds held as much as 5% Russian positions before the invasion of Ukraine, but many portfolio managers began to reduce their exposure when the threat of war grew.
What should I do if there are Russian stocks in my portfolio?
If you are concerned about Russian holdings, contact your broker to determine your degree of exposure and what you can do about it.
You may be advised to retain ownership, particularly in mutual funds, as the fund manager may take appropriate action to reduce the fund’s Russian exposure, particularly in light of performance recent Russian investments.
Will Russian stocks be delisted?
They already have been. The Russian government passed a law in April 2022 prohibiting Russian companies from having their shares traded outside of Russia via certificates of deposit. DRs are issued for shares of a foreign company and are traded on a local stock exchange.
Transmitters with existing programs must withdraw from the list unless they obtain approval from the Russian government.
Can I still buy Russian stocks?
No. On June 6, 2022, the Biden administration issued an executive order prohibiting investors in the United States from purchasing new or existing bonds or stocks issued by any entity in the Russian Federation. Investors may, but are not required to, sell their Russian positions. They can only do this to an investor outside of the United States.
Two ETFs focus on Russian positions: iShares MSCI Russia ETF and Van Eck Russia ETF. Trading is currently halted on these two funds.
If a mutual fund includes debt or equity securities issued by Russian Federation entities, investors may continue to buy, hold or trade such securities as long as “these holdings represent less than a predominant share in value of the fund. In other words, unless the Russian holdings are large, you can continue to trade these types of funds.
How can I buy Russian stocks in the United States?
You cannot currently buy new or existing Russian stocks as a US investor. Some US mutual funds have small Russian positions, and these are still available for US investors to trade.
What is the name of the Russian stock index?
The Russian stock market is called the Moscow Stock Exchange. The MOEX Russia Index is an ETF that tracks the Moscow Stock Exchange. As of June 26, 2022, this fund is down 37.45% over the past year.
Ultimately, the likelihood of your portfolio having a large position in Russian stocks or bonds is low, especially if you invest in mutual funds. If you hold Russian positions, you may need to hold onto them unless you can sell them to someone outside of the United States.
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