Interactive Investor

Investors overwhelmingly back JPMorgan Russian Securities

7th March 2022 13:22

Kyle Caldwell from interactive investor

The trust comfortably passed its continuation vote. Kyle Caldwell runs through the details.

Shareholders have voted in favour of JPMorgan Russian Securities (LSE:JRS) continuing for a further five years at its annual general meeting (AGM).

At the AGM, which took place on Friday, shareholders overwhelmingly voted for the investment trust to continue (99.4%), with two-thirds of shareholders voting.

The board had recommended that shareholders vote in favour of continuing. The vote was not prompted by Russia’s invasion of Ukraine. Instead, the company has a continuation vote every five years – with its previous vote taking place on 7 March 2017.

JPMorgan Russian Securities’ share price has been hit hard in recent weeks – down nearly 90% prior to the invasion on 24 February. At the end of January, it had £314 million in assets. Its assets have since shrunk to around £40 million.  

Some investors have been attempting to ‘buy low’ and JPMorgan Russian Securities entered our top 10 most-popular investment trust table in February.

In a statement on 25 February, JPMorgan Russian Securities said that it is “working to interpret the impact of the new sanctions on the company and its portfolio. Further announcements will be made if required.”

It added: The company's manager continues to monitor the situation in the region closely. The company remains invested and continues to operate within its stated objective and investment policies. The board is being kept fully abreast of developments.”

Since the invasion, two of its directors have stood down – on 24 February and 1 March.

James Carthew, head of investment companies at QuotedData, criticised JPMorgan Russian Securities’ board for recommending that shareholders voted in favour of continuing.

Carthew said: “I think the main reason it passed is that shareholders hadn’t had enough time to process events in Ukraine before submitting their votes.

“The sanctions that have decimated its NAV aren’t going away soon. Russia has been kicked out of emerging markets indices and that isn’t going to change for a long time either.

“Then there’s the embarrassment factor of being invested in a murderous regime – that can only change if Putin goes. I think the board was wrong to recommend that shareholders vote in favour of continuation and the asset manager will want to disassociate itself from it before too long (as two of its directors already have). Its days are numbered.”

Beyond JPMorgan Russian Securities, there are 20 other investment trusts that have exposure to Russia. The data, which was published by investment trust analyst Winterflood, shows that 12 trusts have a weighting of less than 1.5%. 

A flurry of open-ended funds have put suspensions in place, including JPM Emerging Europe Equity , Liontrust Russia, Barings Eastern Europe and Pictet Russian Equities.

The Russian central bank has shut its stock market in response to the crisis. As a result, funds with a large amount held in Russia are currently unable to sell stocks to meet investor withdrawals.

Investment trusts do not suffer the same problem, as under the trust structure, a fixed number of shares are issued, raising a fixed amount of money for the manager to invest in a portfolio of assets. Those shares are traded on a stock exchange and the price fluctuates according to demand and supply. But the fund manager does not have to sell or buy shares depending on whether they are attracting or losing investors. 

Continuation votes explained

Some investment trusts give shareholders the option of voting on whether the trust should continue or be wound up. Under the latter scenario, shareholders are paid their share of the company’s assets at or near net asset value (NAV), rather than the current share price.

Continuation votes are a permanent feature for some trusts, occurring once a year or every two, three or five years.

In other cases, a continuation vote is triggered if a trust persistently performs poorly, or has traded on a wide discount for long periods. The former usually leads to the latter.

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