SPEAR’S Russia Magazine Places UFG Russia Select Fund in the list of the best Russian Hedge Funds
December 29, 2017
SPEAR’S Russia Magazine Places UFG Russia Select Fund in the list of the best Russian Hedge Funds

SPEAR’S Russia magazine has published its ratings of the best Russia-dedicate hedge funds based on the rate of return for the 12 months in 2016. UFG Russia Select Fund, with an impressive rate of return of +50.2% per annum, was listed among the top ten Funds.

The SPEAR’S Russia rating was based on the reported data on Bloomberg. The rating parameters comprise profits following the results of 2016, the Sharpe ratio (a parameter showing investment strategy efficiency through volatility of the rate of return), and portfolio volatility. The rating also reflects historic returns and the volatility of funds.

SPEAR’S Russia is the Russian version of an influential British magazine published for the world’s richest audience. It is printed and distributed in Russia by the Private Banking & Wealth Management Media (PBWM Media) publishing house in partnership with MEDIACRAT. SPEAR’S Russia targets two key audiences: the wealthy and mega wealthy people and professionals offering private banking and wealth management services.

Senior expert, Russian strategies, UFG Asset Management

What did you focus your strategy on? Was it necessary to adjust it somehow, in order to «match» it to the current context?

The success of our fund has always been in stockpicking non-index stocks and in the protection of capital. In 2016, the fund earned on the following factors: a) a selection of shares in the best companies with internal value growth drivers, and b) timely recognition of trend reversals in the oil market, investing «dry powder» held in cash to significantly increase the fund’s exposure in the first half of the year. The point is not in «matching» the strategy to the market, rather, the fact is that investment topics are dynamic, thus success demands active portfolio management and precision in choosing the moment of entering and exiting positions.

Which grave mistakes were you able to avoid, and what do you consider your chief investment success?

We have seen quite clearly the moment of trend reversals in oil, and accordingly, in the Russian market. Simply investing exclusively in the index, where the largest weights belong to oil and gas companies, would have been a crucial mistake. In this connection, the main increase was posted by the index only in December 2016, against the backdrop of the OPEC deal. As for us, we earned smoothly throughout the year on the basis of a variety of investment ideas, not having to rely on an eventual rally in the Russian market that was linked to an event that very easily could have failed to occur. We consistently outperform the market with 1/2 volatility of the fund in comparison with the index.

Are you now seeing an inflow of new clients?

Global investors thus far remain skeptical about the prospects of the Russian economy for a number of perceived reasons: the continuation of sanctions, cautious forecasts on oil price growth (upon which the Russian economy so heavily depends), and the lack (in many people’s opinion) of any clear strategy from the Russian government to actively develop the national economy and attract investment. But there are a fairly large number of market participants who see the opportunity and are willing to take risks, and those earn well. Investors keep a close eye on the market, and we consistently demonstrate that our fund is able to earn on growth, while maintaining earning capacity even when the index drops. The interest of well-to-do Russian investors increases as well, in the light of their understanding that the market is undercapitalized, and that there is the possibility to earn on discount (potential of growth of the index +35% to the value in 2014). While in a number of companies we track, the potential for the growth of the share price exceeds +70% from current levels.

In your opinion, what advantage does UFG have over competitors within the scope of your adopted strategy?

The fund’s strategy lies in the generation of profits with a constant monitoring of risks, while keeping volatility at low levels. The main argument can be seen in this illustrative example: if one loses 50% of its capital in one year in a bad market, it will be necessary for them to earn 100% in order to return to the zero point. How can one accomplish that in a volatile market? In order to have the chance to recover the losses one would have to take even bigger risk, and thus potentially lose even more. This is a highly risky strategy and often unsuccessful. Instead, what we do is our utmost to avoid such deep drops in the first place. A look at the statistics covering our work over the years reveals our story of success: the fund drops on average twice as little as the index in a down market, capturing two-thirds of the index growth in an up-market, ensuring a permanent capital gain in the long run. Since 2010, the fund has shown a rate of return of +65% (in dollars terms), while the index dropped by −26%.

Which market developments since the beginning of the year do you consider the most interesting and the most significant?

Very important for us in 2017 were the trends in China’s metals & mining sector, which started to drive up prices for many types of metals and for coal, as early as 2016. In terms of the total earning capacity of the fund, strong price trends in the metallurgic segment permitted us to earn practically half (!) of our overall result.

How do you plan to finish this year? What will you place your stake on?

The fund shall continue to add to its oil and gas stocks exposure against a background of strong oil and the expected correction due to prior lack of interest of investors in this segment. Our focus, as usual, is diversification and risk management. In 2017, from the beginning the year through the end of October, our fund showed a rate of return of +20% (in dollar terms), while the Russian stock market (RTS index) dropped by 3% over the same period.

The full text of the article in Russian could be found here.