ETF Hemorrhages Assets as Gazprom-Led Slide Fuels Exodus

Investors have pulled more than $350 million out of the largest Russian exchange-traded fund in the U.S. since February, cutting assets to the lowest level since 2009 as OAO Gazprom drives declines among stocks.

Outflows from the Market Vectors Russia ETF totaled $94 million this month through April 24, after reaching $260 million in March, the biggest monthly loss since May 2011, data compiled by Bloomberg show. The fund’s total assets fell to $1.27 billion at the end of last month, the least since November 2009, the data show.

The ETF, run by Van Eck Securities Corp., holds shares of 47 Russian companies including gas export monopoly Gazprom, state-run lender OAO Sberbank and crude producer OAO Rosneft. The fund has slumped 12 percent this year, exceeding a 2.6 percent drop in the MSCI Emerging Markets Index, as faltering profit sank Gazprom, the nation’s biggest company, and falling oil prices dim the outlook for an economy forecast to expand this year at the slowest pace since a 2009 recession.

“People associate Russian equities with oil, gas and metals; they are concerned with declining oil and commodity prices and don’t want to take any risks,” Ilya Kravets, director of investment research at Daniloff Capital LLC in New York, said by phone April 24. “ETFs are very popular with investors, because it’s easy to get in and easy to get out. As economic growth in Russia slows, investors get even more scared and sell.”

Zhi Cao, listed as one of the managers on the Russia ETF, declined to comment when contacted by phone in New York April 24. Hao-Hung Liao, another fund manager, didn’t return e-mails and phone calls last week.

Gazprom Dividends

State-controlled Gazprom, the world’s biggest natural gas producer, has lost more than a third of its market value over the past year amid rising expenditure, declining profit and the prospect of lower-than-forecast dividends.

Gazprom’s market capitalization fell to $89.6 billion April 22, compared with $136.6 billion a year ago, data compiled by Bloomberg show. The company recommended April 11 a 2012 dividend payout 33 percent lower than the year before after full-year net income to Russian accounting standards dropped 37 percent. Gazprom has lost 20 percent in New York this year and 15 percent on Moscow’s Micex Index.

“As ETFs target state-owned corporations such as Gazprom, which have been performing poorly, they underperformed many emerging market indexes, further reducing investor sentiment,” Ian Hague, founding partner of New York-based Firebird Management LLC, which manages $1.3 billion of assets including Russian stocks, said by phone April 26. “Dependence on oil is the key problem for Russia’s economy.”

Putin ‘Stasis’

JPMorgan Chase & Co. advised clients to reduce Russian stock holdings last week as Gazprom’s proposed dividend cut, falling oil prices and “policy stasis” in President Vladimir Putin’s government overshadow low equity valuations, according to an April 20 report. The Micex Index trades at 5.2 times estimated earnings, the cheapest among 21 emerging markets tracked by Bloomberg.

Urals crude, Russia’s chief export oil blend, gained 3.8 percent last week to $101.18 a barrel, trimming its drop this year to 7.8 percent. The Standard & Poor’s GSCI index of raw materials gained 2.4 percent in the week to 622.29, paring a 3.8 percent decline in 2013.

Commodities made up more than 80 percent of Russia’s export revenue in 2011, according to government data, and oil and natural gas account for about 50 percent of the nation’s budget revenue. Policy makers cut Russia’s growth forecast to 2.4 percent this year, compared with average expansion of about 7 percent during Putin’s first two terms as president.

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