From Russia, With Love
10/14/2005 12:00 am EST
For the more speculatively inclined, two leading fund experts see opportunity in Russia. Ivan Martchev offers his top plays in the region, while Sheldon Jacobs looks to a specialized mutual fund whose largest weighting is in Russia. Here are their reviews.
"When investing in Russia, go for the blue chips first," says Ivan Martchev. "Oil giant Lukoil (LUKOY Other OTC) is the king of the Russian blue chips. With more than 20 billion barrels of proven oil and gas reserves, the company is second only to ExxonMobil. But Lukoil is determined to get even bigger. Higher oil and gas prices have helped it increase its spending on exploration and development of new fields, including Russia’s Caspian Sea oil reserves. Buy below 60.
"Investing in Russian telecoms is another
good idea. Growing income and strong regional expansion of business demand
for telecom services support a high growth rate in this sector. Our favorite play is
Rostelecom (ROS NYSE), which owns a key freshly
upgraded backbone network that connects Russia’s Far East (with continuation into China
and Japan) with Europe. The company has no significant debt and has been very
wise with capital expenditures. Buy under 18.
"Central Europe & Russia Fund (CEE NYSE), a holding in our Growth Portfolio, has effectively transitioned its strategy to focus on Russia as the largest Eastern European market. The portfolio is concentrated in energy, financials, and materials. About 50% of the fund is concentrated in the top 10 holdings due to the tendency of such funds to invest in top-tier blue chip stocks. Of its Russia exposure, Lukoil and another Russian energy company, Surgutneftgaz are top holdings.
Sheldon Jacobs adds, "Christopher Alderson has guided Price Emerging Europe and Mediterranean (TREMX ) to top performance over the past thee years, with a gain of 31% this year alone. Despite the outstanding performance of this fund, it has less than $500 million in assets. The fund should not form the bulwark of an investor’s exposure to international stocks, but it’s an outstanding small component of a broadly diversified portfolio and an especially intriguing opportunity for folks who have money set aside for speculative investments.
"Overall, Russia represents 26% of the fund. Though the Putin administration’s influence in Russian’s natural resources companies is worrisome, there’s not doubt that Russia is benefiting mightily from high oil prices and a tax system that rewards initiative. To decrease the fund’s political risk, Alderson has been trimming the fund’s positions in Russian resource stocks.
"Alderson looks for companies with high profitability and open-ended business opportunities. That’s one of the factors behind his interest in Russian discount retailers, which he believes should benefit from consumer income growth in Russia. The fund's other large weightings are in Turkey, where he’s investing heavily in financial-services, and Egypt, where he feels the wireless-communications industry holds particular promise for investors."