Baring international fund tests slipping Russian stocks

Baring Asset Management Inc.'s Nudgem Richyal and Christopher Lees, whose international fund doubled the return of its benchmark last year with the help of Chinese stocks, moved into Russia just as the market stumbled.

The managers unloaded PetroChina Co. Ltd., the world's biggest company by market value, and Guangzhou R&F Properties Co. Ltd. in December after Chinese stocks became the most expensive in Asia.

They bought the fund's first Russian stock, OAO Sberbank, the country's largest lender. The shares have dropped 18 percent this year, though Richyal said he was investing for the long term.

"I'm warming up to Russia this year," Richyal said in a Feb. 6 interview in Boston, where Baring has an office. "We're in the infancy of a resource and consumption boom in emerging economies."

From Baring's London office, Richyal and Lees manage $2.5 billion in non-U.S. investments for institutions and retail investors. Baring, which also has offices in Hong Kong and Tokyo, oversees $55 billion as the investment manager for MassMutual Financial Group, of Springfield, Mass.

The Barings Focused International Plus Equity Fund, sold to institutions, rose 25 percent last year, compared with the Morgan Stanley Capital International EAFE Index's 11.8 percent gain, according to a report to shareholders. While Richyal did not provide returns for this year, his benchmark has dropped 11 percent.

Richyal and Lees also manage the retail MassMutual Focused International Fund, which climbed 18 percent last year, beating 82 percent of rival funds, according to data tracked by Bloomberg. The $84 million fund has lost 9.1 percent in 2008.

The Barings Focused fund has about a third of its assets in European countries including Britain, France and Germany, less than the MSCI index's 42 percent. It held 11 percent in Russia, the United Arab Emirates, Brazil and South Korea, which are not represented in the MSCI index, in the fourth quarter.

Until December, China accounted for 1.5 percent of assets. "I'm underweight in Europe to fund some of the more exciting stuff," Richyal said.

The managers sold their China shares as the CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen, almost tripled last year, the most among the 90 global indexes tracked by Bloomberg.

The CSI 300 has fallen 8.6 percent this year, ranking 45th of the major international indexes. Companies in the CSI 300 are valued at an average of 43.9 times earnings, more than twice as expensive as Japanese stocks or those on the MSCI Asia Pacific Index.

The Shanghai-listed shares of PetroChina surged 85 percent from their Nov. 2 public offering to the end of the year.

PetroChina's Hong Kong shares, which have traded on the exchange since 2000, jumped 26 percent last year.

Chinese Property Shares of Guangzhou R&F, based in Guangzhou, advanced 65 percent in 2007 as property prices increased and the company expanded to Shanghai to tap into soaring land prices.

Shanghai's 2006 residential property prices rose an average of 41 percent, according to data from Hong Kong-based Centaline Property Ltd.

Sberbank, a former Soviet-era banking monopoly that controls about half of Russia's retail deposits, accounted for 1.9 percent of the fund on Dec. 31. The stock advanced 23 percent last year as the global credit crunch enabled the Moscow bank to expand in corporate debt. Sberbank has retreated this year after third-quarter earnings, released at the end of January, missed analysts' estimates.

Russia, the world's biggest exporter of oil, has entered its 10th year of economic growth, driven by surging energy prices and a growing middle class. The Russian Micex Index rose 11.5 percent in 2007, the sixth straight annual gain. It has fallen 12 percent so far this year.

Richyal and Lees also put more money in the Middle East, with mixed success. The Barings Focused fund owns shares of Emaar Properties PJSC, the largest real estate developer in the region, and DP World, the port operator that raised $4.96 billion in November in the Middle East's biggest share sale.

Emaar shares have slumped 24 percent this year as the company scrapped the initial public offering of its Indian unit, citing poor investor demand. The Dubai company has returned an annual average of 67 percent during the last five years. DP World's shares have fallen 36 percent since the November share sale on concerns that slowing global trade will curb shipping.

Managers: Nudgem Richyal, Christopher Lees.

Assets: $84 million.

Performance: Down 9.1 percent in 2008.

Key holdings: Worleyparsons Ltd., Singapore Exchange Ltd., Millicom Intl. Cellular S.A.

Ticker: MOUAX.

SOURCE: Bloomberg NewsEndText