Current situation

On the 22nd of February when Putin announced that Russia recognises the two regions of Luhansk and
Donetsk as separatist governments, this was the first proclamation of war which has now escalated to
troops driving deeper into the country having attacked Ukraine from 3 directions.

The world has been taken by surprise by Russia’s surprising escalation of the conflict. Vladimir Putin’s
decision to authorise military action against Ukraine shows the disdain that Russia has for international
law and for the United Nations. The actions have ripped through both international law and the Minsk
agreement.

The invasion has instantly marked a major paradigm shift of Western politics towards Russia. A colossal
amount of sanctions are being announced by the West which seem to be on an hourly basis, and may well
be the start of a protracted stand-off between Russia and the West.

While the West is targeting Russia with financial sanctions designed to cripple the Russian economy,
the world waits to see ‘what’s next’; we could see Western arms and materials supporting any Ukrainian
insurgency.

Economic impacts
The immediate impact of Russia’s hostile actions have been seen already, equities have fallen sharply and
many regions such as the U.S. and Europe have seen equities hitting new lows for the year. On the other
side of the coin, Russian assets have plummeted due to imposed sanctions with the implication being that
this will only intensify.

The geopolitical breakdown with the West and Russia will have sudden effects on oil and gas prices, as
seen by recent price increases. This may also have a further upward pressure on inflation; the central bank
meetings generally showed the idea of leaving the energy sector to deal with itself and normalise throughout
2022, but with recent events, supply-driven inflation may go through a phase where the recovery is delayed
and raising its peak. The West now also has to find another route to fill the gap left when they eradicate
their dependency on Russian energy and fossil fuels. In addition, demand for certain commodities that
would be commonly used as pantry stock may also increase boosting upward inflation pressure.

The economy was already starting to feel the effects of the prospect of central banks’ monetary tightening
policy, prior to the advancements of Russia within Ukraine. This headwind may now be eased due to
the number of sanctions being imposed by the West on Russia. The sanctions may protect the Western
economies by slowing down growth, the initial reason for the monetary policy tightening.

How will it affect ebi portfolios?
As for Russian and Ukrainian equities, our exposure to Russia is minimal and we have no exposure to
Ukrainian equities or bonds in our Vantage Earth portfolios. This was not a tactical decision, and our
portfolios still maintain a close to market-cap approach, with small differences due to factor exposures. This
can be seen in the table below.

The miniscule exposure to Russia may reduce further due to the sanctions placed by the US, UK and
European Union. Fund managers may react to these sanctions by removing any exposure to Russian equities
as a result of large scale ESG red flags.

As with all market shocks, it’s human nature to attempt to take some form of action, but to do so you run
the risk of attempting to ‘time the market’. Picking winners and losers is a dangerous game and one of the
key advantages offered by ebi’s portfolios is diversification.

Diversification will naturally minimise the risk of loss; if one country performs poorly over a certain period,
other countries may perform better over that same given period, reducing the potential losses of the
portfolio compared to if it had been concentrated in one market.

Our positioning
Even in these times predictions are exactly that, just predictions. If you would have asked anyone what
the economic environment would have looked like today 3 years ago, its almost certain that none of them
would have been close to predicting the current economic landscape. Therefore while we are not certain
about the future, we invest on the core principle that ESG passive investment, with diversification among
factors, is the preferred long-term course of action for superior risk-adjusted returns.

The argument that these factors have certain moments in the economic cycle where they shine brightly is
true. However, moving in and out of these positions at optimum times and predicting when we are entering
a certain stage in the economic cycle is near impossible to do, consistently. We, therefore, believe that
including factors in our portfolios at all times has positioned them well to deal with any market regime,
and only by stepping back and taking a holistic portfolio view over a long-term time horizon can we fully
appreciate the interaction among these various factors.

ebi monitor the portfolios on a daily basis to ensure the risk profile is maintained. We will continue to
hold extremely well diversified assets which will help cushion the falls compared to owning a single equity
investment. We are also monitoring the underlying funds within the portfolios to ensure that they are
performing as anticipated, and in-line with the index they are tracking.

We have money to invest, should we invest now or wait?
Market volatility and falls in the valuation of stock markets can present buying opportunities. However, it’s
worth remembering that we are still in the early stages of this conflict and its quite likely that there will be
market volatility over the coming weeks/months. None of us really know how long and how widespread the
conflict will be.

An evidence-based investor will take the view that ‘timing the market’ is a high-risk gamble and that ‘time in
the market’ is the best way to build long-term investment returns. Whilst studies suggest investing a lump
sum may deliver a higher return than phasing the investment over a period of time, we cannot be certain
of this and investors should prepare for continued volatility and be comfortable with the risks that they are
taking.

Will I be told if my portfolio has fallen?
You can login to your Transact wrap platform at any time to view your portfolio valuation. Legislation requires
you to be notified should your investment fall by 10% within a quarterly reporting period. You may receive
this notification from either ebi, the wrap platform or your financial adviser.