BlackRock to close two Russia-focused ETFs

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BlackRock has informed shareholders of its intention to shut down two exchange-traded index funds that hold Russian securities after they saw their value plummet following the invasion of Ukraine.

Trading activity was already suspended in early March in BlackRock’s European-listed iShares Russia ETF (CSRU) and BlackRock’s iShares MSCI Eastern Europe ETF (IERE) which held a 67% weighting in Russian stocks before the invasion.

The pricing of Russia-focused ETFs listed in Europe and the United States became very erratic in the days following the invasion of Ukraine when the Moscow exchange was closed. Russian companies that had cross-listings on international markets also saw their stock prices drop to almost zero.

The volatility prompted stock exchanges in London, New York and across continental Europe to suspend trading in Russian ETFs in early March, leaving investors with no way out.

BlackRock said on Friday it was “acting in the interests of shareholders” by closing the two ETFs because a significant portion of Russian securities were still not marketable to non-Russian foreign investors.

BlackRock intends to return to shareholders any net realizable proceeds from non-Russian holdings in IEER on or about June 27.

However, Russian securities held in both IEER and CSRU will remain in the funds until it is “possible, practicable and appropriate” to liquidate each of the positions in an orderly and managed manner, BlackRock said.

The iShares MSCI Russia ETF (ERUS), which is listed in New York, also remains suspended but no indication has yet been provided whether it will also be closed permanently.

Foreign investors – from pension plans to hedge funds – held around $170 billion in Russian assets at the end of 2021, but most of that capital has been wiped out and any residual value will be extremely difficult to recoup.

It is unlikely that Russia will be able to resume its participation in global financial markets for many years to come, with a growing number of governments now determined to ensure that Moscow pays a high price for the destruction it has wrought in much of Ukraine.

Three other asset managers – Danske, Nordea and Jupiter – took steps to permanently close actively managed funds that had high exposure to Russia.

Other managers, including JPMorgan, Amundi, UBS, BNP Paribas, Abrdn, Schroders and Pictet, have frozen Russia-focused actively managed funds since the invasion, but have not confirmed whether those vehicles will be closed permanently.

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