Major US and UK index providers have dropped Russian stocks from their benchmarks by writing down the value to zero and some top asset managers have followed suit, but the impact on most investors’ portfolios is likely to be “negligible” because the amounts are probably small, according to Ben Johnson, director of global exchange-traded fund research at Morningstar.
As of end-2021, he says there were 150 index-tracking ETFs and mutual funds which have more than 0.5% of their portfolios invested in Russian stocks.
The combined value of the funds’ Russian stock holdings plunged over 77% in the first two months of 2022. From nearly US$17.5 billion on December 31, the value was less than $4 billion on February 28, four days after Russia invaded Ukraine, Johnson writes in a commentary recently.
New York-based MSCI and London-based FTSE Russell announced on March 2 that they were removing Russian stocks from their benchmarks on March 9.
Two days later, New York-based S&P Dow Jones Indices said Russian headquartered or listed firms would all be dropped from its benchmarks on March 9. On the same day, Chicago-based financial services firm Morningstar said it will remove Russian stocks from its indices on March 18.
Asset managers have also begun writing off the value of their Russian stocks.
On March 3, US asset management giant BlackRock said it had marked down its Russian stock holdings to zero. A day later, French asset manager Amundi said the value of its funds’ Russian holdings has been marked down to zero “until further notice”.
“The impact of these write-offs of Russian stocks on most investors’ portfolios is likely negligible,” Johnson says in the commentary.
He expects more asset managers to follow suit.
“This helps them to manage their index portfolios to the extent that will resolve potential tracking error issues once the securities have been removed from these funds’ benchmarks. It may also help them to comply with rules regarding the portion of their portfolios that are invested in illiquid assets. Deeming these assets to be worthless can keep them in compliance,” he writes.