(MENAFN- Gulf Times) Franklin Templeton Investments' decision to close its underperforming 20-year-old Russia fund was driven by a lack of investor interest and limitations on trading imposed by international sanctions against the country, according to Mark Mobius, chairman of the firm's emerging markets group.
"The main problem was the size of the fund, not big enough to be profitable," he said last week.
The Templeton Russia and East European Fund, which Mobius manages, has declined 38% over the past five years through July 23, compared with a slump of 25% in the MSCI country benchmark.
The assets have shrunk to $58mn in June from $394mn in October 2007. The closed-end fund will be liquidated before the end of this year pending investor approval, the firm said last week.
The closure of the fund, started in June 1995, is the latest sign that global investors are abandoning Russia as it heads toward the first recession since 2009.
Capital outflows may reach$90bn in 2015 after last year's record of more than $150bn amid punitive measures linked to the Ukraine conflict along with a rout in oil prices that has stalled the rouble's recovery.
Also influencing the move to shut down were "the constraints that we suffer from as a result of these limitations" on investing that have been imposed through sanctions by the US and European authorities, Mobius said by phone from Italy.
"The inability to invest in a number of companies" is "a problem."
The fund traded at a discount of 12% to its net assets last week before the announcement.
It invests at least 80% of its holdings in Russia or Eastern European countries and has stakes in companies such as Magnit PJSC, the country's largest retailer, and Sberbank.
"We are still invested in Russia," Mobius said. Mining and raw materials producers along with consumer stocks are the most interesting sectors in the market, he said.
"Some of the oil and gas companies are very interesting, but most of them are subject to these limitations and constraints that we have, and we can't buy."
The Templeton Russia and East European Fund rose 0.5% to $10.59 at 9:46 am in New York on Friday, extending its advance this year to 18%. The MSCI Russia Index has gained 21% in 2015.
The closure is another letdown for Mobius, who is credited as a pioneer in emerging-market investing.
The 78-year-old investor will retire in October as the lead manager of one of the oldest developing-nation stock funds after trailing his benchmarks in recent years.
The Templeton Emerging Markets Investment Trust, a £1.9bn ($2.9bn) fund traded in London and New Zealand, has selected Carlos Hardenberg to take over, it said in a filing on July 13.
Mobius will support Hardenberg as a portfolio manager and remain chairman of the Templeton Emerging Markets Group, which oversees about $39bn in assets.
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