Liontrust Russia Fund Q2 2021 review | Insights | Liontrust Asset Management PLC

The Liontrust Russia Fund returned 11.3% for the quarter, versus the MSCI Russia 10-40 Index return of 13.2%*.

Global equities had a strong quarter as the global economic recovery gathered steam, while the spread of the Delta variant and a hawkish turn from the Fed added some volatility. Commodity exporters led the way with the Russian market returning 13.2% and significantly outperforming global markets. The rally in Russian equities was driven by earnings estimates which were revised 15% higher over the quarter and are now nearly 25% higher than at the start of the year. Higher earnings revisions have been driven to a large degree by the energy sector, with estimates up 24% during the second quarter and over 60% since the beginning of the year.

Oil prices had another strong quarter rising from $63/bbl to $75/bbl. Demand continues to be robust supported by the vaccine rollout and an improving economic outlook, while supply remains disciplined. OPEC+ have prolonged their production cuts and will only gradually return spare capacity to the market. Meanwhile, US shale producers have shown uncharacteristic discipline with supply only recovering modestly following the sharp declines last year. OPEC+ will be watching this situation closely as curtailing their own production while the US ramps up supply could fuel discontent within the group and lead to an acceleration of returning the 6mbpd of spare capacity to the market. The US and Iran failed to finalise a deal prior to the Iranian presidential election, so significant sanctions relief to unlock Iranian supplies now appears unlikely in the near term. Continued robust demand and disciplined supply is likely to remain supportive of oil prices in the near term although supply side uncertainties still need to be monitored closely.

The mining sector also stands to benefit from the global economic recovery without the supply overhang seen in the oil market. However, the sector’s performance was held back in the quarter as the government introduced a 15% export duty on most metals for the remainder of the year, to be replaced by a new tax framework for next year.

On the geopolitical front, the US and Russia continue to make progress towards de-escalation which was helped by the meeting of Presidents Putin and Biden in Geneva in June. This resulted in both ambassadors returning to their foreign posts and the creation of top-level committees to address pressing issues including arms control, cybersecurity and “strategic stability”.

The market was again led by more cyclical sectors with energy and financials posting the strongest returns while utilities and consumer staples lagged. This was broadly in line with the strongest and weakest earnings revisions, respectively.

Key positive contributions came from TCS, Alrosa and Headhunter. On the other side of the ledger, notable detractors to the Fund’s performance were Tatneft, Mail.ru and Evraz. The expectation remains that 2021 will be a year of rapid recovery and that life will have more or less returned to normal by the end of the year. Although the prevailing view is that 2021 will bring us back to normality, some developments seen in 2020 will persist. Distinguishing between cyclical and structural changes is important in understanding the outlook for 2021 and beyond.

Discrete years' performance (%)**, to previous quarter-end:

	Jun-21	Jun-20	Jun-19	Jun-18	Jun-17
Liontrust Russia C Acc GBP	20.3	-2.3	25.5	21.9	29.1
MSCI Russia 10/40	23.4	-3.3	27.0	16.8	15.1

*Source: FE Analytics as at 30.06.21.

**Source: FE Analytics as at 30.06.21.

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