Institutional Investors in Russia - Retail Absorbs Institutional Sales

In this note, we provide an update on institutional investor positioning. We demonstrate that foreign asset managers have reduced their allocation to Russia over the past year, selling to local investors. Regarding individual stocks, institutional investors have massively increased their overweight in Yandex, financing the shift by selling Gazprom and other exporters. Local investors have eagerly picked up these names on the other side of the trade.> Russia allocation falls, yet the overweight increases. Russia made up 4.6% of GEM investors' portfolio in 2Q20 versus 5.0% a year earlier. In the meantime, Russia's weight in the MSCI EM index has fallen from 4.0% to 3.0%, so the overweight has actually increased, to a record high of 1.6%.> Renaissance of Russian retail investors is shifting the free float. While foreign institutionals remain the core investors, the surge in interest from retail investors over the last two years is restructuring the investor base. We calculate that 3-4% of Russia's free float has been sold by foreigners to local investors.> Yandex by far the largest overweight in Russia. Foreign investors own $18.3 bln worth of Yandex, more than any other stock. As of end-2Q20, they were 18.4% overweight Yandex. Even adjusting for the stock's August MSCI inclusion, it remains the largest overweight. However, the numbers show that Yandex ownership remains highly concentrated, with few funds owning a substantial stake in the name.> Preferences of retail and institutional investors differ significantly. We compare data on the portfolios of retail and institutional investors and see a clear skew toward value stocks among locals. When institutional investors have sold down Gazprom and other exporters to finance purchases of Yandex, retail investors bought up the former. We expect a migration of the free float from foreign asset managers to retail to continue as the latter's appetite grows, and think that value stocks will be better positioned to benefit from this trend.