The Russian Federation first Mercantile Fund (“RFFMF”) had strong fourth quarter benefiting from a Donald Trump victory, which is seen hugely positive for Russia.  In addition to the improved geo-political outlook, the price of oil (brent) increased 16% in the fourth quarter and was up a whopping 52% for the year.  The currency (ruble) gained over 2% vs the US dollar in the quarter and ended the year 15% stronger. A highly concentrated portfolio towards the largest companies paid off and the fund produced a stellar outperformance to the stock market.

Despite these massive moves in 2016, Russian equities remain at close to 50% discount (P/E) vs Emerging Markets in general and a 60% discount to global equities.  One cannot help the positive outlook from a Russia friendly foreign minister taking over in the USA. Rex Tillerson, the former CEO of Exxon Mobil, an oil-guy with a friendly attitude towards Russia along with a Russia-friendly President-elect bodes well for the outlook with possible easing of sanctions and stronger business and political relations.

Most foreign institutions are heavily underinvested in Russian equities resulting from the sanction regime currently in place.  Most good news in terms of recent achievement by the government in Russia has gone by un-noticed by most investors and observers like; Ease of Doing business where Russia was 112th in the world in 2013 (where 1 is best) and now number 40.  Government expenses has been slashed by 10% and Russia enjoys a gross savings rate of 26% vs GDP with among the lowest debt levels in the world.

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