Interactive Investor

Board ‘very surprised’ investment trust bought Russian company on day of invasion

17th March 2022 14:41

Sam Benstead from interactive investor

ScotGems bought shares in London-listed Fix Price Group but has seen its investment marked down to zero.

The board of underperforming emerging markets trust ScotGems (LSE:SGEM) has expressed its shock that its fund managers invested in a Russian company on the day of the Ukraine invasion last month.

On February 24, the £38 million closed-ended fund added a 1.1% position in Fix Price Group, a Russian retailer listed on the London Stock Exchange. That investment is now worthless as trading in its shares has been suspended.

Before this, ScotGems (LSE:SGEM) had avoided Russian shares on environmental, social and governance (ESG) grounds.

Chair William Salomon said: “The board were very surprised with such a decision being made, and even more so that First Sentier Investors permitted such a trading instruction to be processed, in the prevailing circumstances.

“Given that stock market trading in all London listed Russian companies has subsequently been suspended, this investment is now held in the portfolio at nil value.”

The fund is managed by Tom Prew and Chris Grey of Stewart Investors, part of Australian investment group First Sentier.

However, on 9 March First Sentier resigned from managing the trust. Prew and Grey will remain in charge of the portfolio until a new manager has been appointed.

Since the trust was launched in 2017 it has lost 32% while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 27%.

Salomon said the disappointing performance was due to a low weighting to Asia and a high weighting to Africa.

China, South Korea and Taiwan account for nearly 50% of the benchmark index and have been the best performing regions in it over the past few years.

The fund managers said the market had punished it for focusing on “value” shares that make a lot of money today rather than promising but unprofitable “growth” companies.

They said: “ScotGems (LSE:SGEM) owns a lot of ‘jam today’ companies – by which we meant well-stewarded businesses which we can value according to actual cash flows rather than hopes, dreams, and powerpoint presentations."

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