Some big global investors are riding out the stomach-churning drops seen in Russian assets this year, refusing to join a stampede to the exits on the belief that any retaliation against Moscow for its role in Ukraine will fade and prices will rebound.

A Reuters analysis of Lipper mutual fund data shows more than three-quarters of asset managers cut their Russian allocations in the first quarter of 2014. The few holding to their positions acknowledge that the choice has hit performance but argue that the price declines are so extreme as to be unwarranted.

"Investor response over Russia is emotional rather than rational," said Julie Dickson, equity product manager for London-based emerging market fund manager Ashmore.

Russian stocks, in particular, have been pummeled, including a one-day market plunge of more than 10 percent in early March. Year-to-date, the ruble-denominated MICEX stock index is down 13 percent, while the dollar-denominated RTS is off 21 percent.

The ruble has slid 8.5 percent against the dollar.

Dickson said Ashmore does not believe the unrest in Ukraine, which western powers contend is being fomented by Russia, will result in an all-out military conflict.

The stand-off with Moscow "will be resolved diplomatically. Valuations in Russian equities are extremely cheap and they have overshot on the downside," she said.

But for now, Ashmore's overweight position in Russia has hurt results. Its emerging market small-cap equity fund year-to-date is down 3.30 percent versus a 4.82 percent gain for the benchmark MSCI emerging market small cap index, according to Reuters data.

Russian equities are trading at five times trailing earnings. That's less than half the multiple of 12.2 for their peers in the MSCI Emerging Markets stock index and compares with 18 for the U.S. benchmark S&P 500 index.

Unlike Ashmore, most investors have pulled back, with 86 percent of mutual funds reporting allocations in both the fourth quarter of 2013 and the first quarter of this year having cut their exposure to Russian equities, according to Lipper, a Thomson Reuters company.

JPMorgan, for one, is recommending underweight positions across Russian equities, fixed income and local currency markets as the conflict between Moscow and Kiev deepens.

Norway, with the world's largest sovereign wealth fund at $860 billion, is holding off making new investments in Russia.

Normally taking advantage of market stresses, the fund's chief executive, Yngve Slyngstad, told Reuters: "Countercyclical does not really work well when the risk factors are of a geopolitical nature."

DEBT SWOONS

Dollar-denominated Russian sovereign bonds and quasi-sovereign bonds are down 4.93 percent year-to-date, second only to Ukraine's 9.47 percent loss. Every other component, save for Ghana which is down a third of 1 percent, on the JPMorgan EMBI Global benchmark index is up this year. The index itself is up 5.45 percent in 2014.

Investment-grade Russian debt trades at 360 basis points over comparable U.S. Treasuries on the index. That is worse than lower-rated credits like Indonesia and Croatia.

"Russia is trading like a weak double-B, high single-B credit," Los Angeles-based TCW portfolio manager Dave Robbins said in a conference call.

Among hard-currency debt funds, 75 percent cut their Russia allocations, according to Lipper, while 78 percent of local currency debt funds made similar cuts.

TCW maintains an overweight Russia position between 10 to 11 percent versus an 8.9 percent weight within the index.

"We certainly have been hurt by our exposure to Russia," Robbins said. "Obviously, with the political situation in Ukraine it has cost us a little over 50 basis points of performance, but we think Russia has gotten to the level where it really is extremely cheap relative to many other credits within the markets."