Portfolio diversification today

Since January 1, 2023, it has become more difficult for unqualified investors to reduce portfolio risks through diversity of securities. By order of the Central Bank of the Russian Federation, access to securities of unfriendly countries is prohibited for non-qualified investors. Currently, the list includes 49 countries, namely: Albania, Andorra, Australia, Andorra, Bahamas, Albania, Australia, Iceland, Canada, Japan, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, Norway, San Marino, Northern Macedonia, Singapore, South Korea, Switzerland, Taiwan, Taiwan, Ukraine, South Korea, Switzerland, the United Kingdom and the United States.

The regulator's decision is quite understandable: diversification, but the threat of blocking the assets of Russian citizens by unfriendly countries should not be underestimated.

After the first shock, unqualified investors decided to diversify their portfolios with Chinese assets, but that was not the case. It turns out that some Chinese securities are also registered in unfriendly jurisdictions! In order not to waste time analyzing a security that they won't let you buy, you should pay attention to the ISIN (International Securities Identification Number) before you start working with it. As a result, an unqualified investor can invest in foreign securities if they are traded on the SPX Exchange and their ISIN starts with RU, IL, HK or CNE.

Given the fluidity of the RMB exchange rate and the specificity of Chinese companies in friendly jurisdictions, such alternatives look very scarce. If your portfolio has been heavily oriented towards foreign securities in the past, there are two compelling alternatives: foreign securities futures (on ETFs on indices) and obtaining qualified investor status.

The first alternative is easy to use even for unqualified investors - it is enough to pass a test for knowledge of derivatives market instruments. And now you can bet on the major assets represented in the indices , , Hang Seng, DAX 40, .

Naturally, since futures in our country are represented not on direct assets, but on their ETFs, there is, of course, a risk of the issuer leaving these assets, but it is negligible. It is technically impossible to freeze money invested in futures on Russian exchanges by unfriendly actions. But many people mistakenly assume that futures are suitable only for active traders, because they have an expiration date. But this is not true: many futures can be purchased for 2-3 years, and then simply buy a new contract, betting on the long-term growth of this or that market. Yes, this will lead to additional costs, but they will be less or comparable to commissions when trading stocks.

There is also a myth about the leverage built into futures: supposedly, when trading futures, you always trade with a larger amount than you have in reality. This is nonsense! In order not to use the leverage, buying a futures contract on SPDR S&P500 ETF Trust, you must have on your account its value (approximately $412 in ruble equivalent), then you will not have any leverage effect! At the same time, you will be withheld only a security equal to 10-30% of the contract value to secure the position, and the remaining money can be invested in reliable short-term bonds for additional income.

Of course, betting on individual stocks, even in the long term, can yield more income than trading indices. But 90% people who come to study at our courses for beginner traders, index returns are quite enough to close their financial plan goals in 10-15 years.

Naturally, this may seem too long a prospect to some people, and some people may even want to trade in foreign shares speculatively. In this case, you cannot do without the status of a qualified investor. If you are thinking of acquiring such a status for trading foreign securities or for other purposes, hurry up! Most likely, the rules for obtaining it will be tightened with regard to the amounts required for this purpose.

I would also remind you that a qualified investor does not need to pass tests to obtain various accesses to complex Russian financial instruments and margin trading. There are also active discussions in the market about tightening the testing rules.

Returning to the practice of access to foreign securities for qualified investors, it should be noted that the risks of owning foreign shares are associated not only with the direct threat of their blocking, but also with the risk of imposing sanctions on NCC. And this is already fraught with the fact that it will not be able to conduct transactions with currencies of the countries that have imposed sanctions.

And here everyone decides for himself what is scarier for him: an undiversified portfolio or the risk of losing liquidity of the whole portfolio or a part of it overnight.

If there are only two alternatives, and we do not take index investing, which, as I mentioned earlier, can close the goals of many, then, given the psychology of trading, I choose the second one - to take risks by buying individual foreign stocks in addition to the RF portfolio. Naturally, I divide the portfolio assets between the different markets in a sensible way. Since if the most negative scenario works, I get up, shake it off, and go on earning! This is better than trying for years to build a portfolio in the Russian Federation, which will still not be complete without decent pharmaceutical companies, retail, real estate, IT-companies, companies whose shares can be classified as ethical investments.

Naturally, you should closely monitor market trends and try to find opportunities that will help you invest abroad with less risk. These are now appearing for brokers, for example, thanks to changes in the systems for holding securities.

Nevertheless, don't relax! Keep your hand on the pulse!