Research Notes

Finam Management mulls floating in June equity stakes of close-end mutual fund of high risk (venture) investments in the sector of Innovative and Growth Companies on MICEX. In this research note we analyzed this investment opportunity.

Purchasing equity stakes of Finam-IT mutual fund looks attractive first and foremost because of its unique status – the Russian stock market virtually offers no options for portfolio investors to invest cash in IT and hi-tech projects. Taking part in projects is possible only with relatively big amounts and only after lengthy negotiations are completed.

Another advantage of the mutual fund is sizeable growth potential both from the increase in value of existing projects and the acquisition of new projects. The Russian IT market itself is in an embryonic state and we believe that in the future due to a sharp rise in the number of personal computers among households and a higher penetration rate of broadband technologies information transfer and data processing services will enjoy stronger demand.

Moreover, IT investments are an excellent opportunity for portfolio diversification. It is evident that development of software products and other hi-tech segments are in no absolute correlation with energy prices. What’s more, there is no minimal amount for equity stakes to be purchased, which is fairly convenient for most investors, since this puts no limits on their operations.

Investments in the IT sector using the mutual fund are also convenient, as they are diversified in the fund’s portfolio – assets involve a dating website, a software developer, an advertising platform and a money transfer system. However, one of a few drawbacks of the fund is that 74% of the fund’s assets are held by one company and an additional issue is carried out specifically for the implementation of new projects.

The experienced team of professionals, transparency for investors and stringent regulation on the part of the state (regarding payments, regular assessment of asset value, reporting and audit procedures) minimizes the infrastructural risks of investing in the close-end mutual fund.

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