Broker Check

Russian Concerns

February 28, 2022

I’d like to keep you updated with our observations regarding the Russian concerns and open a dialogue if you want to discuss your financial plan.

Let’s start with perspective about the Ukraine/Russian situation. This geopolitical event is concerning on practically every level, leaving a wide range of potential outcomes and scenarios. Putting aside views on the way this might evolve, our role is to look at this financially and ensure clients are secure. This requires us to avoid prediction and instead use multiple layers of thought.

Our first layer of thought is to ensure you are secure personally. As we look at our client’s standard of living, we can expect a further rise at the gas station, but we’d expect most to weather this quite easily. You may not foresee anything else adversely impacting you, but to create a ballast against anything denting your financial progress (which may or may not happen), we encourage you to continue maintaining a safety net of cash.  

The second layer is the robustness of your portfolio, including potential knock-on effects. In financial markets, many industry professionals are trying to grapple with this, especially the potential consequences of Russia’s actions and subsequent sanctions from the West. From this research, there are offsetting impacts expected. For ease of understanding, we will split this into direct Russian/Ukrainian exposure versus knock-on effects.

  • Let’s start with the good news—your direct exposure to Russia and Ukraine is negligible. Nor do we have any notable exposure linked to the banks that have been sanctioned. We do maintain exposure to emerging markets given the attractive valuations and diversification, but the weighting to Russia and Ukraine are small. For example, Russian companies only account for around 2.9% of the emerging market basket for equities and around 4.1% for bonds. Ukraine doesn’t even register on the factsheets it is so small. (Perversely, if prices in these regions fall significantly, the expected reward for buying these markets might exceed the risk—creating a buying opportunity—but that isn’t the case right now).

  • Moving to knock-on effects, the risks are more notable, but we do see some offsetting positives. Again, starting with the good news, the tensions are pushing commodity prices higher. This supports energy companies, which we have exposure to. We also carry a long term, valuation-driven focus in the portfolio (preferring cheaper assets) which tend to do well in this kind of environment, so we have another ballast. That said, we can’t rule out an exodus of investor money if things deteriorate quickly. We never expect straight lines in markets, and if negativity really takes hold, it could open a world of opportunity to add undervalued assets to your mix.    

In case it wasn’t obvious from the above, we are monitoring this situation closely and hearing from a range of industry experts to understand the impact as it evolves. Ultimately, we are keeping a close eye on any consequential impacts and given everything we know (while acknowledging the unknowable), it reinforces the benefits of a long-term, valuation driven approach. If anything changes, we’ll be sure to let you know, but for now we hope you find this touchpoint useful.

As always, please don’t hesitate to contact us if you have any questions or issues.