JPMorgan Russian Securities has 'adequate resources' to stay open despite 95% fall in asset value

Despite the "severe negative impact" of the ongoing Russian sanctions, the JPMorgan Russia Securities trust management team believes it still has enough assets to continue operating for the next year.

The trust's half-yearly report revealed the widespread effect global sanctions on Russian assets has had on the portfolio. These were brought in after Russia invaded Ukraine back in February.

Almost all the fund's holdings are Russian equities and as a result, practically all trading was frozen, which caused the trust's net asset value to drop 95.2% from January to end of April, and has fallen even further since.

Its share price fell by 87.6% over the same time period and as of the end of July its individual share price was 69.5 pence. Its total AUM is now £18.4m.

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Despite this, the board remains confident that it can continue to operate, stating that it taken  risk and management policies into consideration.

"The company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the company that would prevent its ability to continue in such operation existence for at least 12 months from the date of the approval of this half yearly financial report," the board said.

It is worth noting that days after the war broke out, the management team waived its management fees until further notice.

In an attempt to outmanoeuvre the Russian sanctions, the board is planning to seek FCA approval to broaden the mandate so that it can invest in emerging Europe (including Russia), the Middle East and Africa.

This would be a step away from the trust's current mandate of purely investing in Russian equities.

The board is currently in the process of requesting authorisation from the FCA and, if granted, it will send a full breakdown of the changes to shareholders prior to the next AGM in autumn, where they will vote on the topic. 

Eric Sanderson, the trust's chair, noted this proposition in the report, saying: "Although the outlook for the company is uncertain, it is capable of continuing as a going concern for at least several years and it is the board's hope that it will be possible to amend the company's investment objective and policies as referred to above and help steer the company through this difficult period, and preserve as much value in the company for shareholders as possible."

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In his overall outlook, Sanderson addressed the uncertainty facing the portfolio: "The sanctions and restrictions that followed the invasion were wide ranging and had a very sharp negative effect on the company and international markets. […]

"If current levels of public concern in much of the West about the humanitarian crisis unfolding in Ukraine continues, many Western governments will be under pressure to permanently and significantly reduce their reliance on Russian energy supplies.

"This, together with the continuing exclusion of Russia from Western financial systems, may destabilise and isolate Russia to such an extent that holding investments in the country becomes prohibited and/or unviable."

JPMorgan declined to comment on the proposed changes to the mandate.