top of page

Ukraine Update

Figure 1: Share of Exports for Russia (2021) and Ukraine (2020). The most significant exports from Russia (blue) in 2021 were crude and refined oil (36.5% of total exports), natural gas (12.7%) and iron/steel products (6.6%). For Ukraine (green), meanwhile, grains and beans account for 34.6% of exports while iron and steel represent 26.0%. Source: Flexport

Russia shocked the world and rattled global markets when it launched a full-scale invasion of Ukraine on February 24, 2022. The human cost of the invasion has been tragic and continues to develop. Reports of the Russian military targeting Ukrainian civilians have spawned a refugee crisis, as millions seek safety outside of the country. In response to Russia’s aggression, the United States and its allies have projected unity through increased humanitarian and military aid to Ukraine, and through tough economic sanctions, including a U.S. ban on Russian energy imports. Given Russia’s dependence on oil exports (see Figure 1), this action will deal a significant blow to Russia’s economy. Other sanctions targeting Russia’s central bank and Russia’s ability to access the dollar have coincided with a massive depreciation of the ruble (Russia’s currency). The collapse of their currency, along with diminished access to the Visa and SWIFT networks (which together account for the majority of global card transactions), has caused ordinary Russians to lose faith in the stability of their banking institutions. Additionally, global companies like Starbucks and Coca-Cola are voluntarily leaving the Russian economy behind, albeit many are using language that reflects a temporary cessation of activity rather than a permanent withdrawal. Afraid of capital flight and the devastating impact it could have, Russia closed the Moscow Stock Exchange on February 28, and equities trading remains halted as of this writing (the longest such event in modern Russian history). Lastly, investment-related institutions from MSCI to BlackRock are making a stand in solidarity with Ukraine. MSCI removed Russian equities from its indices, citing the difficulty to trade Russian equities. BlackRock supported a trading halt for its MSCI Russia ETF (ticker: ERUS). Other Russia-linked vehicles have seen trading halts as well, as the invasion of Ukraine proceeds.

While the humanitarian impacts of the invasion are at the front of our minds, as investors, we must also gauge the impacts on markets. To start, it is important to note that most diversified global portfolios, including those of our clients, generally have low exposure to Russian equities. Vanguard Global Equity Fund, for instance, currently has about 0.08% exposure to the country. Before being removed, the weight of Russia in the MSCI Emerging Markets Index was only 1.5%.

Despite this relatively low direct exposure to Russia, concerns remain regarding the market impacts of the ongoing conflict. For one, Ukraine and Russia are both major commodities suppliers to the world, and disruptions in Ukraine and bans of energy imports from Russia will contribute to an already-high inflationary environment. These pressures may force the Federal Reserve to revise its thinking on the timing and size of future Fed Funds Rate hikes necessary to combat inflation. In addition, market volatility has been significant in the near-term. The trading halts and depreciation of the ruble have investors worried about their exposure to Russia for economic reasons, as well as not wanting to support the invaders. On March 7, 2022, major U.S. indices fell – the Dow Jones Industrial Average entered correction territory, having fallen more than 10% from its high, and the tech-heavy Nasdaq entered bear market territory, with the index falling more than 20% from its record high in November 2021. The S&P 500 was down more than 12% year-to-date through March 8, despite the energy sector returning an astonishing 42%, according to Kiplinger. An ETF tracking an index of developed markets outside the U.S. (EFA) was down 14.3% for 2022 as of the same date. Europe has been especially hit, as seen from the iShares Core MSCI Europe ETF’s (IEUR) return of -16.8%. While the outcome is still unknown, the sharp decline of global markets may indicate that investors are pricing in a prolonged conflict. Should a resolution occur more quickly than expected, markets could rally, and we’d expect volatility to lessen. Either way, there are investment allocation implications to bear in mind now and in the future.

European equities have relatively low valuations compared to the S&P 500. If the conflict is short-lived, we could see a rally in European equities as low valuations and increased clarity give investors confidence. If the conflict is prolonged, we expect European equities to remain under pressure, given their dependence on foreign sources of oil, gas, and other products. We believe there are benefits to maintaining a diversified global portfolio with exposure to less expensive stocks relative to the S&P 500 in either case. Portfolios with exposure to U.S. private markets may also benefit from lower volatility, lower relative valuations, and the predominantly domestic consumption of the private company consumer base (which is more insulated from the conflict).

The building inflationary pressure from the Russian invasion, combined with supply chain disruptions and an already inflationary environment, contributes to a negative outlook for bonds. The Federal Reserve is signaling rate hikes over the course of the next year and the risk is that the Federal Reserve may increase rates more than the market is currently pricing in due to inflationary factors. Coupled with the reduced diversification benefits of bonds in this environment, investors with already low bond allocations should maintain or reduce fixed income allocations. If allocations to fixed income must remain moderate to high, investors should consider reducing their duration, or interest rate sensitivity, if their investment policy allows for it.

This conflict also brings in mind a certain policy concept – it is better to have insurance before you need it. At Mangham Associates, we believe that this also applies to asset allocation. Having a diversified, balanced portfolio with exposure to assets with different return drivers can provide peace of mind in a tumultuous world. For example, one of the asset classes we encourage clients to have in their investment policies is real assets. Real assets can provide varying degrees of inflation protection; however, there is a trade-off between the performance of certain real assets during non-inflationary periods and their level of inflation sensitivity (e.g. commodities have high inflation sensitivity and generally perform poorly during non-inflationary periods). The key is finding the right balance that works for your portfolio.

The people of Ukraine are in our thoughts and prayers as we all must remember the human costs of the conflict. The effects of this invasion go far beyond any sanction or investment, but to the very people living it. As always, we welcome your questions and conversation – please reach out to us anytime you would like to chat.

Best Regards,

Tyler Griffin and the Mangham Associates Team

About the Author. Tyler Griffin is a Vice President at Mangham Associates with over five years of investment experience. Prior to joining Mangham in 2016, Tyler worked at a mortgage company and freelanced as a writer. Tyler graduated summa cum laude and was inducted into Phi Beta Kappa. He enjoys volunteering and earned the Virginia Sons of the America Revolution Graves Preservation medal in 2021. Tyler is a CFA Charterholder and a Chartered Alternative Investment Analyst (CAIA) Charterholder. Tyler earned his B.S. in Business Administration from the University of Mary Washington.

© 2022 Mangham Associates, Inc. All rights reserved.

For institutional or accredited investors only. Confidential – Not for reproduction or distribution.

The information presented should not be considered an offer to sell or the solicitation of an offer to purchase any particular security. Any such offer to sell or solicitation of an offer to purchase may be made only by means of the delivery of a confidential offering memorandum, which will contain material information not included herein regarding, among other factors, risk and potential conflicts of interest. This presentation should not be used as the sole basis for making a decision to invest with Mangham. In making an investment decision, you must rely on your own examination of the offering. You should not construe the contents of this letter as legal, tax, investment, or other advice, or a recommendation to purchase or sell any particular security. No assurance can be given that investment objectives will be achieved.

Opinions expressed herein are those of Mangham Associates, and there is no assurance that any predicted results will actually occur. The information contained herein is based on sources believed to be reliable; however, its accuracy is not guaranteed.

This document contains information about possible or assumed future results of general economic conditions. “Forward‐looking statements” are based on assumptions that Mangham Associates believes to be reasonable but are not guarantees of results.

Unless otherwise noted, all returns are net of manager fees, and client managed total returns are net of Mangham Associates’ advisory fee. Additional information, including advisory fees and expenses, is provided on Mangham’s Form ADV Part 2A. Performance data is unaudited and subject to change. It is not possible to invest directly in an index and unmanaged indices do not incur fees and expenses.


Indices are used for benchmarking purposes and do not necessarily represent the same diversification or weightings as Mangham's various composites. It is not possible to invest directly in an index and unmanaged indices do not incur fees and expenses.

MSCI Global Investable Market Indices – The indices are constructed to provide exhaustive coverage of the investable opportunity set with non-overlapping size and style segmentation. A strong emphasis is placed on investability and replicability of the indices through the use of size and liquidity screens. Source and use of MSCI Data: Morgan Stanley Capital International (MSCI). MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products on any indices. This information is provided on an “as is” basis, and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and MSCI, its affiliates and each such other person hereby expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information have any liability for any direct, indirect special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits), even if notified of, or if it might otherwise have anticipated, the possibility of such damages.

S&P 500® – Measures the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. S&P® and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. © 2022 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. All rights reserved.

Performance data quoted represent past performance; past performance does not guarantee future results.

Recent Posts

See All

While 2022 had no shortage of tragic and sobering events, the human desire to change the world for the better through hard work and innovation continued. In this spirit, as another year ends and we ce

bottom of page