A new European ETF platform has announced its presence on the scene with the launch of two Russia-focused funds under the ITI Funds banner. ITI is a new offering from independent investment specialist Da Vinci Capital Management, launched in 2007 to exploit opportunities in emerging markets.
Can you explain what the products are?
The ITI Funds RTS Equity UCITS ETF and the ITI Funds Russia-focused USD Eurobond UCITS ETF will be traded on the London Stock Exchange but their primary listing is in Dublin. They will also be admitted to the Moscow Stock exchange in due course. The ITI Funds RTS Equity UCITS ETF is the first ETF to provide exposure to local Russian shares. It will physically replicate the free-float cap-weighted RTS Index – comprised of 45 equities – which is Russia’s oldest and most widely used equity index.
Why is now the right time to be launching these funds?
Oleg Jelezko, managing partner of Da Vinci Capital Management, said Da Vinci’s experience of over a decade operating in emerging markets meant the company had a “deep understanding of the markets and how they operate”. “The launch of ITI Funds is an extension of our skills to provide investors a well-structured and regulated platform from which they can access what we believe is a significant growth opportunity,” he added.
What do investors need to know about the Russian economy when investing in these funds?
ITI Funds believes that the timing of the launch of these Russia-focused ETFs is propitious when it come to the potential growth story in Russia. “Much of the international data on Russia is pointing to growth strengthening throughout 2018,” said managing director of ITI Funds, Elio Manca. “From a pure equity perspective, markets have failed to account for economic improvements, shares remain highly discounted with Russia having one of the lowest price-to- earnings ratios in the world.” He added that the funds provide a diverse exposure to direct securities into the Russian equity and bond markets at a low point of the economic cycle.
What index will these fund track?
The ITI Funds RTS Equity UCITS ETF will physically replicate the free-float cap-weighted RTS Index – comprised of 45 equities – which is Russia’s oldest and most widely used equity index. The ITI Funds Russia-focused USD Eurobond UCITS ETF will track the ITIEURBD fixed-income index designed by Solactive. The index portfolio comprises USD Eurobonds of Russian issuers with a credit rating that is equivalent to Russia’s sovereign rating or above.
Currently, the index comprises 22 bonds, providing investors with exposure to top-quality names on the market of Eurobonds of Russian issuers. It is calculated daily, assumes quarterly rebalancing and reinvestment of coupon income.
Should investors in the bond fund be worried about the effect of western sanctions on Russian corporate?
Manca points out that price levels are strongly supported by Russia’s Central Bank through Repo operations. “Despite, or rather, because of western sanctions, Russian corporates have deleveraged themselves over the past three years and the Russian Eurobond market remained resilient to credit rating downgrades due to strong domestic demand,” he said. “Add to this, a re-rating of its credit score in the coming weeks is not unreasonable to expect. Such a move would see Russian foreign debt feature across a range of global benchmarks and would mark Russia as one of the most appealing of investment-grade emerging markets.”