The War in Ukraine


Russia’s invasion of Ukraine is an important reminder that geopolitical risk is part of investing in global markets.

Global Developments and Their Impact

Military or economic conflicts and other geopolitical events can affect stock markets, and we believe current market prices quickly incorporate expectations about the effects of these events on economies and companies. Our investment approach centers on using information in current market prices rather than trying to outguess them. If markets stay open and continue to function normally, we generally continue investing our portfolios according to our usual process. We believe that the most effective way to mitigate the risk of unexpected events is through broad diversification and a flexible investment process.

In our firm’s 22-year history, we’ve applied this philosophy to other crises, too, including the following:

  • Natural disasters—Hurricane Katrina in 2005, the Fukushima nuclear disaster in Japan in 2011, and others
  • Civil unrest—Including the “Arab Spring” uprisings in the 2010s and the protests across the United States galvanized by the police murder of George Floyd in May 2020
  • Terrorist attacks—Including September 11, 2001
  • Pandemics—Such as SARS in 2002 and our ongoing COVID-19 epidemic

Geopolitical events sometimes lead to government sanctions which restrict investors’ ability to trade in specific stocks or on certain exchanges. The U.S. and other Western governments have issued sweeping sanctions directed at Russia. Dimensional, the asset manager of many funds in client portfolios, previously reduced the weight of Russia in both the emerging markets and global equity portfolios after sanctions were imposed in 2014 over Russia’s annexation of Crimea. In January 2022, further purchases of Russian stocks were halted in response to rising risks of sanctions on Russia from the global community. Dimensional is not currently buying Russian shares, including depositary receipts with exposure to Russia, and they are evaluating the suitability of Russian securities for their portfolios. Russian ruble-denominated bonds and Russian issuers have never been eligible for Dimensional’s fixed income portfolios.

Historically, in some cases geopolitical events have led to temporary market closures, impacting all stocks in a certain market for a period of time. For example, on June 27, 2015, Greece closed its stock market after defaulting on its government debt; the Athens Stock Exchange stayed closed until August 3 of that year. During the Egyptian revolution, the country’s stock exchange closed after January 27, 2011, and remained closed for over a month.

Unplanned market closures are not limited to emerging markets. In 2019, the Tokyo Stock Exchange closed for 10 days after Japanese Emperor Akihito abdicated the Chrysanthemum Throne. In 2001, the New York Stock Exchange closed for nearly a week after the September 11 attacks on the World Trade Center.

Market disruptions are not new, and the forms that they take can vary.

Russian Stock and Bond Exposure in Your Portfolio

Fund company Dimensional’s systematic active investment process is designed to adjust to new information in real time, including information about world events and their potential market repercussions. (Dimensional defines an “active” approach as one that seeks to outperform its benchmark, versus a “passive” approach that closely tracks a benchmark. Tilting portfolios toward small cap, value, and higher profitability stocks throughout all market cycles is an example of Dimensional’s systematic approach.)

In early March 2022, Dimensional announced that their Investment Committee removed Russia from their list of approved markets for investment.

As of March 31, 2022, Dimensional portfolios had a weight of 0.00% in Russia. While Dimensional still owns shares of Russian securities, those were valued at zero at the close of the quarter, due to the closing of the Russian equity markets. (As of February 28, 2022, those equities represented between 0.07% and 0.42% of the U.S.-domiciled emerging markets equity mutual funds and ETFs, compared to 1.59% in the MSCI Emerging Markets Index.1) The plan is to divest all Russian holdings from Dimensional portfolios as market conditions allow.

Not all JLFranklin Wealth Planning clients own exclusively Dimensional funds. Clients who hold funds other than Dimensional—including those in Vanguard and in 401(k) and other retirement plans—are encouraged to reach out to us with questions about their exposure to Russia.

The Secret Sauce: Flexibility

Unlike traditional index funds, Dimensional funds are not constrained to follow the actions of a benchmark during times of crisis. Deletions from benchmarks happen in the regular course of business, and in the wake of geopolitical events the logistics follow a similar pattern: The index provider announces the deletion date in advance, and funds seeking to mirror the holdings of that index must sell the deleted securities at the market close on that date. Seeking to track the index limits a manager’s options regarding what actions to take and over what time frame. It may also result in diminished returns, as other managers who are also seeking to track the same index fund are all forced to sell at the same time.

Here’s an example of how this works. On January 7, 2021, MSCI announced it would drop China Mobile, China Telecom, and China Unicom from certain benchmarks effective at market close the following day to remove sanctioned Chinese stocks from their indices. Together these stocks represented more than 0.5% of the MSCI Emerging Markets Index. Funds tracking that index needed to sell their entire positions in those stocks at the market close on January 8 if they wanted to minimize tracking errors vs. the index.2 In fact, on that date all three stocks traded at their lowest closing price for the week and closed higher every day in the week that followed. While Dimensional divested from these stocks within portfolios for U.S. investors for the same regulatory concerns, they didn’t need to isolate their trading to a single trading day. Instead, they traded over several days during the week of MSCI’s announcement and the following week.

Planning for the Unexpected

Investors in global equity portfolios inevitably face periods of geopolitical tension. Sometimes these events lead to restrictions, sanctions, and other types of market disruptions. We cannot predict when these events will occur or exactly what form they will take. However, we can plan for them by managing diversified portfolios and building flexibility into our process.



  1. Numbers are preliminary and subject to change.
  2. Tracking error: A measure used to quantify how closely a portfolio follows an index or benchmark, often defined as the standard deviation of the difference between the portfolio and index returns.