Sanctions on Russia amid its war on Ukraine create divestment challenges for emerging market fixed income exchange-traded funds (ETFs), Fitch Ratings said Tuesday.

"The sharp decline in Russian bond liquidity, the lack of reliable pricing and the restricted access to the Russian market are making it difficult, if not impossible, for EM ETFs to sell their holdings," the global rating agency said in a statement.

"Fund managers are more likely to try to sell positions if a willing buyer exists to more closely mirror underlying indices and minimize tracking errors between fund performance and the returns of the benchmark index it tracks," it added.

Fitch noted that the US prohibited participation in the secondary market for all Russia-related sovereign debt issued on and after March 1, but funds can divest of bonds issued before this date if a buyer can be found.

ETFs are a type of investment fund and an exchange-traded product that are traded on stock exchanges. They hold assets such as stocks, bonds, currencies, futures contracts and commodities./aa