BlackRock to close two Russia-focused ETFs
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BlackRock has notified shareholders that it intends to close two exchange traded funds that hold Russian securities after seeing their value plunge following the invasion of Ukraine.
Trading activity was already suspended in early March in BlackRock’s iShares European-listed Russia ETF (CSRU), and BlackRock’s iShares MSCI eastern Europe ETF (IEER) which held a 67 per cent weighting in Russian stocks prior to the invasion.
On February 23, the day before Russia’s attack on Ukraine, assets under management in CRSU stood at $215m while IEER held assets worth $128m.
The pricing of Russia-focused ETFs listed in Europe and the US became highly erratic in the days following the invasion of Ukraine when the Moscow stock exchange was closed. Russian companies that had cross-listings on international markets also saw their share price plummet in value to almost zero.
The volatility prompted stock exchanges in London, New York and across continental Europe to call a halt to the trading of Russia ETFs in early March, leaving investors with no way to exit.
BlackRock said on Friday that it was “acting in the interests of shareholders” by closing the two ETFs as a significant portion of Russian securities were still not currently tradeable for non-Russian foreign investors.
BlackRock intends to return to shareholders any net realisable proceeds from non-Russian holdings in IEER on or around June 27.
However, the Russian securities held in both IEER and CSRU will remain in the funds until such time as it is “possible, practicable and appropriate” to liquidate each of the positions in an orderly and managed way, said BlackRock.
The iShares MSCI Russia ETF (ERUS), which is listed in New York, also remains suspended but no indication has yet been provided if it will also be closed permanently.
Foreign investors — from pension plans to hedge funds — held an estimated $170bn in Russian assets at the end of 2021, but most of this capital has been wiped out and any residual value will be extremely problematic to recover.
Russia is unlikely to be able to restart participation in global financial markets for many years with a growing number of governments now determined to ensure that Moscow pays a high price for the destruction that it has caused across a large swath of Ukraine.
Three other asset managers — Danske, Nordea and Jupiter — have taken steps to permanently shut down actively managed funds that were heavily exposed to Russia.
Other managers including JPMorgan, Amundi, UBS, BNP Paribas, Abrdn, Schroders and Pictet have frozen actively managed Russia-focused funds since the invasion but have not confirmed whether these vehicles would be closed permanently.