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Investment firm VanEck recently suspended two Russia ETFs as Western sanctions bite hard on profitability.
New York-based asset manager VanEck is liquidating its Russia exchange-traded funds (ETFs) following a lack of Western investment interest. According to VanEck, since the Russian-Ukraine strife began, US investment in Russia has effectively dried up. The Russian market has taken a hit since the country invaded neighboring Ukraine, with Moscow’s stock market closing temporarily. Furthermore, the ongoing Western sanctions against Russia essentially prohibit its major stocks, including Gazprom, from trading in the West. This unsavory development is causing liquidity issues for the funds.
Touching on the decision to wind down its Russia ETFs due to inactivity, VanEck explained in a press release Wednesday:
“The Funds’ inability to buy, sell, and take or make delivery of Russian securities has made it impossible to manage the Funds consistent with their investment objectives. The Funds will not engage in any business or investment activities except for the purposes of winding up their affairs.”
The investment management firm’s two Russia ETFs, the VanEck Russia ETF (RSX) and VanEck Russia Small-Cap ETF (RSX), effectively froze after March 4th. At the beginning of 2022, the RSX fund had over $1.3 billion in assets under management (AUM).
Presently, VanEck put fund redemptions on hold while it liquidates the positions. The firm also suggested that redemption remains suspended pursuant to a Securities Exchange Commission (SEC) order. Furthermore, VanEck said it would distribute any liquidation proceeds to investors on January 12th next year.
VanEck Unwinding of Russia ETFs Follows Similar Franklin Templeton, BlackRock Moves
VanEck’s move to unwind its Russia ETFs comes on the heels of a similar announcement by Franklin Templeton. Last week, the leading asset management firm suspended its FTSE Russia ETF (FLRU) shares redemption pursuant to an SEC-exemptive order.
However, Franklin Templeton also stated that FLRU will remain in existence until at least December 31st, 2023. The reason is to allow the ETF to sell the securities if conditions allow. The fund could terminate sooner upon selling all Russian securities before the end of next year. The Franklin Templeton FTSE Russia ETF could also terminate if its funds no longer represent valid interests in their issuers.
In early August, the world’s largest asset manager, BlackRock, also suspended its iShares MSCI Russia ETF (ERUS). In a press statement at the time, the New York-based multinational investment company explained:
“Russia’s invasion of Ukraine has prompted a range of sanctions and other capital controls that prevent BlackRock and other non-Russian investors from buying and selling Russian securities. As a result, ERUS’ current holdings of Russian equity securities cannot immediately be liquidated.”
BlackRock also said that it would start liquidating ERUS later that month. According to the firm, it would distribute its current liquid assets to shareholders minus the amount of a reserve estimation. This reserve could cover ERUS’ anticipated transaction costs associated with the liquidation.
BlackRock also stated back in August that the fund’s liquidation could take an extended period.