Why Newtown Should Dump Russian Stock

Newtown Township pension funds include shares in the Aberdeen Emerging Markets fund (ABEMX), which is the only pension fund that owns shares in Russian companies. At the March 9, 2022, Newtown Township Board of Supervisors (BOS) meeting, supervisors signaled their intention to rid the township's pension funds of Russian stocks in protest against the invasion of Ukraine by Russia and the apparent war crimes being committed by Russia in Ukraine.

On Monday, March 21, 2022, Supervisors were informed by Dahab Associates (Newtown Township pension funds manager) that ABEMX can’t offload Russian stock because the Russian market was not open. According to the minutes of the March 9 meeting, however, “All agreed to ask Mr. Lewis [the Township Manager] to contact the pension funds advisor to make clear that the Township would not want the funds invested in Russian markets and if Aberdeen is not divested, then our funds should be moved out of Aberdeen.”

According to Dahab, a “representative” of Aberdeen stated that their “intent is to absolutely sell off any Russian stock once they are able to do so when the Russian markets reopen.”

NOTE: The Russian stock market resumed limited trading on Thursday, March 24, 2022, under heavy restrictions. Foreigners – INCLUDING ABEMX – are barred from selling. A U.S. official called the severely restricted market a “charade,” with only some listed shares trading and Russia making clear it would “pour government resources into artificially propping up the shares of companies that are trading.”

Let's NOT wait for Russia to fully open its stock market!

My opinion is that Newtown’s pension funds should offload ABEMX immediately and buy another fund that does not own Russian stock. According to the minutes of the March 9 BOS meeting, that is the opinion of the majority of BOS members:

• “Mr. Fisher and Ms. Snyder both commented that they do not want the Township to hold Russian stocks and would want to see if Aberdeen divests or if not, remove the Township’s investments from Aberdeen.”
• “Mr. Mack said he would like to take a proactive approach rather than see what Aberdeen will do.”
• “Mr. Davis agreed that he does trust our investment advisor but would like to be sure that the pensions are no longer invested in Russian markets.”

Meanwhile, Dahab Associates offered no data for us to go on to make a decision whether or not to sell the entire fund. While we wait for that data, Russia is stepping up its war crimes against civilians.

Let’s look at the data we have. Refer to the Newtown Pension Fund Reports.

As of December 31, 2021, ABEMX accounted for about 6% of the township’s pension fund assets. In fiscal year 2021 ABEMX lost 4% of its value. Therefore, regardless of Russian holdings, it makes sense to dump a fund that has been losing money even BEFORE Russia invaded Ukraine and invest the money in other funds that have been making money, such as an index fund that tracks the DOW, which gained 18.73% in 2021. I have no faith that ABEMX will turn around and increase in value in 2022.

According to Dahab Associates, “Emerging markets …ended the year [2021] down 2.2%. It was the worst performing equity market in the world in 2021… For the fourth quarter, the Aberdeen Standard Investments Emerging Markets portfolio returned -3 .1%, which was 1.9% below the MSCI Emerging Market Index' s return of -1 .2% and ranked in the 76th percentile of the Emerging Markets universe. Over the trailing year, this portfolio returned -4 .0%, which was 1.8% less than the benchmark's -2.2% return, ranking in the 73rd percentile.”

Why are we holding on to this losing fund when the cash resulting from the sale of this fund can be used to invest in Russell 1000V, or some other better performing fund that does not hold Russian stocks?

The trustees of the New York City Fire Pension Fund voted on Thursday, March 24, 2022, to divest its holdings of Russian securities, making it the last of the five pension funds in the New York City Retirement Systems to authorize divestiture. Read more...

What’s YOUR Opinion?

DISCLAIMER: This is not an official Newtown Township approved survey. Its purpose is solely to inform John Mack – a Newtown Supervisor – of the public’s opinion regarding this issue.

Meanwhile, I have requested that this be put on the agenda of the April 13, 2022, BOS public meeting, which will take place in the Newtown Twp public meeting room (100 Municipal Dr) at 7:00 PM.