III Investfunds Forum: Protect Yourselves!


III Investfunds Forum was held in St. Petersburg on May 17-18. This year's conference of institutional investors in St. Petersburg brought together over 240 representatives of regulatory and legislative agencies, pension funds, insurance companies, endowment funds, asset managers and banks. Collective investment market players discussed key investment ideas in the Russian stock market and concluded that this summer would be the time to think of asset protection. This is the principal investment idea of the coming months.

NPF and asset managers: together forever

The matter of NPFs and asset managers’ interaction has been traditionally one of the main subjects at the conference: can asset managers controlling retirement savings survive amidst high volatility, a sharp decline in yields in the sector and shrinking management fees?

The stumbling block for both parties is still the fact that NPFs cannot show negative results of pension investments in their client accounts at year-end. Since asset managers must ensure that retirement savings are intact by each year-end, this prevents them from using more aggressive strategies. Short duration of pension investments largely limits the list of instruments in which pension money can be invested. Solution to this problem is yet to be found, managers complain. But these are the rules of the game, and we have to reckon with them, NPFs reply.

According to Dmitry Alexandrov, President of the National League of Asset Managers, it is important to provide pension savings managers with a wider choice of investment asset types: expand the list of equities beyond the A1 listing, allow managers to use pension savings to invest in equity investment funds, hedge investment funds, PE&VC funds, stimulate creation of Russian counterparts of ETFs and organize trading of ETFs on MICEX-RTS.

Counting on dividends
On the second day of the conference, organizers assembled major bank analysts and asset managers to discuss specific strategies of portfolio management in the current environment.
While the market remains uncertain, risks are high and economic growth extremely unstable, it is wise to give preference to companies with relatively stable cash flows, high dividend yields, a clear strategy and moderate debt, says Kirill Tremasov, Director of Research at NOMOS-BANK. In his opinion, the simplest buy&hold strategy is utterly ineffective.
"Investors are now waiting for the economic downfall to reach its highest rate, postponing the purchase of cheapened assets", agrees Vyacheslav Smolyaninov, Chief Strategist and Deputy Head of Research at Uralsib Capital. In his view, investors may be interested in defensive sectors and structural growth stories in the consumer sector, telecommunications and IT-companies. However, capital outflow may greatly undermine protective properties of securities in these sectors. Stocks with high dividend yields will remain appealing. It makes to buy stocks that would pay dividends about ten days before the record date.

Taking a closer look at bonds
As at the end of 2011, institutional investors controled more than 70% of the bond market against 40% in 2007, said Valery Weisberg, Director of Research at REGION. Retirement money is currently rather evenly distributed over the segments of the debt market, and the shares of equity dropped from 36% to 7%, according to his calculations. Meanwhile, lack of liquidity has resulted in growing interest rates on corporate deposits. First-class banks' offers are comparable to the yields of 1st and 2nd Tier corporate bonds.
According to Dmitry Monastyrshin, Deputy Chief of Enterprise and Industry Research at PSB, key investment ideas of the bond market include buying liquid lombard securities with short durations, as well as promising and undervalued securities of the banking sector, metallurgy, oil services and power industry. Quasi-sovereign risk is also worthy of investor attention.
Ivan Manaenko, Director of Research at Veles Capital urged market participants to choose for active trading in the bond market instead of building REPO pyramids. According to him, active investment scenario in the debt market involves playing on short-term market trends, supply and demand imbalance, pursuing short-term speculation ideas, and frequent change of portfolio contents.
According to Mr. Manaenko's estimates, the market is trading 35 securities with under 2 years duration, which meet minimum rating and liquidity requirements. Of these, 23 issues are in CBR Lombard List. General yield range in this category is 8.5%-14% per annum.