EM specialist Da Vinci Capital launches first ETFs in Europe

Feb 22nd, 2018 | By | Category: Alternatives / Multi-Asset

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Da Vinci Capital, an emerging markets asset manager with offices in Moscow and Hong Kong, has entered the European ETF market with the launch of two Russia-focused ETFs.

Elio Manca, managing director of ITI Funds

Elio Manca, managing director of ITI Funds

The new ETF platform, branded ITI Funds, is an extension of its existing emerging markets proposition.

The two ETFs – one equity fund and one bond fund – are both available to trade on the London Stock Exchange, and are due to launch on the Moscow Exchange in the next few weeksThey are the first of a number of ETFs the firm plans to launch which give investors exposure to emerging markets.

The ITI Funds RTS Equity UCITS ETF (RUSE LN) uses physical replication to track the RTS index. The RTS is made up of 45 equity securities of Russia’s top companies by market cap and liquidity.

Its sector exposure is heavily weighted towards energy stocks at 49% of the total index weight, with the next largest exposures being 19.4% in financials, 16.6% in materials and 4.6% in consumer staples. It is heavily weighted towards large-caps at 89.7% whilst mid-caps represent just 10.3% of the total exposure.

The fund has a total expense ratio (TER) of 0.65%.

The ITI Funds Russia-focused USD Eurobond UCITS ETF (RUSB LN) tracks the ITI Funds Russia-focused USD Eurobond Index calculated by Solactive, which is comprised of 22 Russian sovereign or corporate USD-denominated Eurobonds.

Eurobonds included in the underlying index must be bullet bonds only and have an amount outstanding at least $750m. The index limits a maximum of two issues per corporate issuer and can only track bonds which are equivalent or higher than Russia’s sovereign rating – currently the index is composed of 4% BBB-rated bonds, 13% BBB- and 82% BB+.

The fund has a TER of 0.50%. 

Commenting on the launches, Elio Manca, managing director of ITI Funds said, “We believe Russia’s growth story is in its ascendancy. Much of the international data on Russia is pointing to growth strengthening throughout 2018. 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 continued: “The funds provide efficient entry, with diverse exposure to direct securities, into the Russian equity and bond markets at the low point of economic cycle in Russia.”

“When it comes to the bond market, 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. 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.”

There are various issuers with Russian equity ETFs listed in Europe, including BlackRockDeutsche, Lyxor, Invesco/Source and HSBC, with the iShares, Deutsche and HSBC funds being among the largest. 

The iShares MSCI Russia ADR/GDR UCITS ETF (CRU1 LN) has £370m in assets under management. It tracks the MSCI Russia ADR/GDR Index, which follows the performance of Russian large- and mid-cap stocks through liquid depository receipts (DR). The fund has a TER of 0.65%. 

The db x-trackers MSCI Russia Capped Index UCITS ETF (XMRC LN), which has £201m in assets under management, and the HSBC MSCI Russia Capped UCITS ETF (HRUB LN), which has £175m in assets under management, both track constituent capped versions of the MSCI Russia Index which tracks Russian large- and mid-cap securities.

FinEx lists the only other Russian fixed income ETF listed in Europe (on the LSE). The FinEx Tradable Russian Corporate Bonds UCITS ETF (FXRU_LN) tracks the Bloomberg Barclays EM Tradable Russian Bond index which provides investors with exposure to investment grade fixed income. The index is a tradable subset of broad-based Bloomberg Barclays EM fixed income benchmark indices and is rebalanced semi-annually. The fund has a TER of 0.50%.

So far, there has been $10m of seed money invested into the two new ETFs, which has come mainly from the firm’s own clients.

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