Selling stocks and bonds that have any kind of link to Russia seems like it could be an effective way to pile more hurt on Putin’s economy, especially if a lot of people do it. But there are some practical considerations. For one, how far do you want to take it? Would your plan include tossing out funds that have even the smallest allocation to Russian stocks? Or divesting from companies that sell to Russian consumers? Should you eliminate your holdings in any countries that may potentially support Russia, such as China?
The answers can be complicated. Most of us will have relatively minimal exposure to Russia, and hurrying to divest may amount to little more than a tax bill rather than real geopolitical change. Even so, the idea that any of your money might benefit Russia may now feel repugnant, and some people might derive moral satisfaction from cleaning out their portfolios to avoid any degree of support — now or in the future — for Putin. If that’s you, here’s how to evaluate your investments for opportunities to take a stand.
First, consider retirement accounts, such as 401(k)s. Russia is considered an emerging market and as such, its stocks and bonds aren’t included in most mutual funds and exchange-traded funds in retirement portfolios. Fund research firm Morningstar estimates the average investor’s retirement portfolio has less than 1% in Russian stocks and bonds.
So if you have a narrow menu of fund options in your plan, or are invested rather conservatively, you can probably rest easy; you’re unlikely to hold any Russian stocks or bonds.
You could have more exposure if your 401(k) or IRA includes mutual funds or ETFs that follow an index of international or emerging markets. Even then, Russian stocks have typically made up less than 0.5% of one of the most popular international stock indexes — the MSCI All Country World Index — and about 3% of the MSCI Emerging Markets Index, which many funds use to guide their investments. The cratering of the Russian economy has made those percentages even smaller. And just yesterday, MSCI said it would be removing Russian stocks entirely from its emerging markets index.
Remember, you can’t just sell off the Russian portion of a mutual fund or ETF; you’ll have to get rid of the entire fund. Given the de minimis exposure to Russia for most, divesting an entire emerging market fund won’t achieve much, even symbolically.
Still, there are outliers, and some fund investors may have more of their money invested in Russia than they realize or feel comfortable with.
If you hold a mutual fund or ETF with BRIC (which stands for the emerging markets of Brazil, Russia, India and China) in the name, you probably have more exposure to Russia than that 1% figure. In addition, some international ETFs may track an index that has a bigger allocation to Russia than the MSCI ones. For example, the iShares Emerging Markets Dividend ETF had about 20% allocated to Russia as of the end of last year (that number has now dropped to less than 10%).
And there are actively managed mutual funds whose managers may choose to invest more in Russia relative to the benchmark index their fund measures performance against. For example, the GQG Partners Emerging Markets Equity Fund had about 15% of its assets invested in Russian stocks, including Sberbank.
Beyond funds, some investors may be reviewing individual stocks they hold to gauge whether the companies benefit Russia in some way — perhaps they have significant sales in Russia or sizable operations in the country. We’ve been seeing companies such as Exxon Mobil Corp. and Apple Inc. say they’re backing away from involvement in Russia, so before selling any stock, you’ll want to check to be sure a company is still active in the country.
You’ll also want to consider who you might be hurting — getting rid of companies such as Coca Cola’s Swiss-based bottler Coca Cola HBC or McDonald’s Corp. would mainly penalize Russian consumers.
A more direct way for investors to target Russia is through its economic strongholds, such as oil and gas companies, according to Gita Rao, who teaches a course on impact investing at Massachusetts Institute of Technology’s Sloan School of Management. Selling shares of Gazprom or Lukoil or other oil and gas companies that still support Russia would be a more meaningful approach.
Another consideration: At this point, much of what investors would be trying to achieve has already been accomplished. Major Russian companies have become penny stocks following the global economic sanctions and other actions by European and U.S. companies.
The same moral satisfaction might be better gained by investing in the biggest public companies that are focused on clean energy and a transition to 100% renewables, known as the Clean200, says Andrew Behar, CEO of As You Sow, a nonprofit dedicated to shareholder advocacy. “If all of Europe was off gas, that would have an impact on Putin,’’ Behar says.
More From Other Writers at Bloomberg Opinion:
• The Quantifiable Economic Pain From Ukraine So Far: John Authers
• ‘Sanctions’ Is a New Word for an Old Idea: Stephen L. Carter
• The Currency to Fight Russia Isn’t the Dollar: Paul J. Davies
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.
