07/07/2022 - 16:17

Investigator Trust reveals Russian sanctions impact

07/07/2022 - 16:17

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One of Western Australia’s biggest fund managers, Packer & Co, has spelled out the impact of Russian sanctions as it revealed a negative 1.2 per cent annual performance which still beat its benchmark markets.

Investigator Trust reveals Russian sanctions impact
Russia supplies 30 per cent of Europe’s oil and gas. Photo: Maria Lupan via Unsplash

One of Western Australia’s biggest fund managers, Packer & Co, has spelled out the impact of Russian sanctions as it revealed a negative 1.2 per cent annual performance which still beat its benchmark markets.

Run out of Cottesloe by Willy Packer, the company’s $1.9 billion Investigator Trust has a heavy weighting to Russian energy stocks which have been hit by sanctions following the invasion of Ukraine.

The 1.2 per cent loss for the year indicates a strong recovery from a 12 per cent fall in the fund’s value in February as the war erupted.

In its end of financial year newsletter, Packer & Co highlighted that many big company losses are far greater than anything it has been impacted by. The biggest of the losses noted were among global technology stocks which it had exited in recent years.

Russian energy stocks such as Gazprom and Roscroft have recovered much of their losses since the war began and sanctions meant they could not trade their production in many global markets.

However, with foreigners banned from trading on the Russian stock exchange, the fund manager was forced to value its illiquid stocks, applying an independently valued 58 per cent discount to those stocks which form a prominent part of its portfolio.

Variously-dated US Government Treasury bonds are the trust's biggest holdings, but Gazprom and Rosneft figure among the group’s top 10 equity holdings.

“Our Russian energy shares have had a strong year profit wise, however overshadowing that has been the Ukraine war,” the newsletter said.

“Due to the restrictions placed by the Russian Government on foreign trading in Russian stocks, international investors have been unable to trade Russian securities since the invasion of Ukraine occurred in February.

“The Russian stock market has remained open for domestic investors and stocks on the Moscow Exchange have been turning over in large volumes.

“Given restrictions on trading for foreigners and in line with the Investigator Trust’s constitution, Packer & Co has engaged an independent valuer to determine an appropriate valuation for our Russian holdings.

“The valuer has used a formula based on many factors to determine an appropriate discount to apply to our Russian stocks.”

“As of 30 June, the discount applied was 58 per cent.

“As an example, Rosneft which is Russia’s largest oil company, has had a rollercoaster ride with its share price falling from $10 to $3, and has since recovered to $10.

“Rosneft is expected to earn a profit of US$26 billion this year which means its share price is trading on a price to earnings ratio of 2 times.

“However, after the independent valuer’s 58 per cent discount is applied, we are valuing our Rosneft shares at $4 per share.

“This puts them on a price to earnings ratio of one times and a dividend yield of 48 per cent.”

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