Research & Insights

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Russia Sanctions Highlights | August 2014

Faith Musingarimi, Assistant Vice President at Bivium Capital

Sanctions on Russia stemming from its annexation of Crimea in March have evolved from initial restrictions on some high profile Russian individuals, to most recently, sanctions targeting key Russian industries as the Ukrainian crisis has continued to escalate. Following the July announcements by the European Union (EU) and the United States (US) of additional sanctions on Russia, we felt it would be useful to review the potential impact of sanctions on Russia, and beyond.

August 2014

Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

Markets started the month of August modestly as Argentina’s default and the rescue of Portuguese bank Banco Espirito Santo raised investor anxiety.  Economic news was weak with the US unemployment rate edging up slightly and data disappointing in both China and Europe.  Tensions in Ukraine remained elevated, and the conflict in Iraq intensified.  However, as in many recent rallies, central bank accommodation fueled a mid-month recovery as the ECB moved closer to quantitative easing.  As the month progressed, the softening of some geopolitical tensions helped to sustain the rally.  Meanwhile at the Fed’s annual Jackson Hole meeting, central bankers worldwide generally affirmed the appropriateness of easy monetary policy given current economic conditions.  Despite some concerns as to the timing of rate increases in the US, it’s safe to say that the liquidity punchbowl remains well stocked.

The US broad market Russell 3000 Index finished the month at +4.2%.  US small cap stocks were slightly better with the Russell 2000 Index returning +5.0%.  Outside of the US, developed markets were flat with the MSCI World ex USA returning +0.1% while emerging markets continued their strong performance with the MSCI Emerging Markets Index at +2.3%

Active manager performance was mixed with the best relative performance coming from overweights to growth, momentum, and smaller size.  Factor positioning was more relevant as cross sectional volatility and overall market volatility continued to be significantly lower than historical norms.  Volume traded was also extremely low.  This mix tended to favor select growth managers while being more challenging for value and core managers.