Short-term bond investment strategy
Flagship strategy of Movchan’s Group
7,3%
average annual return for
the period of management
1,3
Sharpe
ratio
5,6%
annual
average volatility
1
negative annual return
for 15 years
(-5,5% in 2008)
~20%
share of managers
proprietary capital
in the fund
Strategy History
The investment management strategy, aimed at obtaining a stable conservative income, was being developed for many years for proprietary needs. The manager and his team were investing own funds without creating an investment product.
The amounts, invested by managers, varied from USD 3 mln in 2003 to USD 30 mln in 2014–2015. During 15 years of existence, the strategy has demonstrated its reliability and the managers obtained a unique experience while working on the markets in close contacts with other managers, brokers, bankers, and combining their asset management activities with investment banking operations and management of financial institutions.
From April 2016, this strategy is offered to customers in the form of "ARGO SP" (segregated portfolio or fund). Managers also offer a replication of the strategy in client’s accounts for balances larger than USD 5 mln.
Conservative dollar investments in global markets
The perfect solution for conservative investors
- The portfolio invested in short-term liquid debt securities
- High diversification: 20–40 issuers, 15–30 countries, 3-4 global regions
- 100% protection from currency risk
- Decision-making regarding securities is based on a thorough analysis of each issuer
Better than a deposit in a reliable bank - more profitable, more liquid, safer
- High liquidity – monthly subscriptions and redemptions
- Risk diversification among dozens of issuers
- Historical profitability is much higher than respective deposit rates
- The tax regime optimal for different clients’ groups
Crisis-proof and interest rate growth protection
- Market volatility is offset by the low duration of instruments
- Short term securities are not sensitive to the growth of interest rates
- Regional risks are compensated by high diversification
- The issuers’ risk is mitigated by a detailed analysis of each security
Reliable infrastructure
- Investment fund structure, client rights’ protection guaranteed by independent providers
- Largest global administrator (APEX) and one of the best prime brokers in the world (UBS)
- Independent administration, NAV calculation, and annual audit
- External management services offered for clients’ accounts (from $5mln.) at a platform as per clients’ choice
Professional fund management
- Partners have a track record of over 30 years
- The strategy has been managed and tracked for more than 15 years showing stable results
- Skin in the game: managers have significant proprietary capital invested in the strategy
- Management fees are significantly lower than the market averages
The main parameters of the strategy
Investment approach
Macroeconomic analysis and analysis of the issuer's creditworthiness
Markets
No industrial or geographical restrictions
Liquidity
Monthly, no limitations and commissions
Target return
US dollar inflation+ 3-5%
Basic portfolio
Predominantly: short- and medium-term bonds, issued by borrowers of acceptable quality; complimentary: third party credit instruments, funds, options (on bond ETFs and currencies), arbitrage positions
Investment process
BASIC INVESTMENT CRITERIA
Debt instruments
- Assurance of the issuers’ ability and, more importantly, eagerness to repay at maturity;
- Low systemic risk. Existence of positive systemic factors (even better — those underestimated by the market due to political or liquidity issues) is preferable;
- Yield to maturity is above the general yield curve for the instruments of the same implied risk, providing for an increased probability of the price growth;
- Limited duration of the instrument allowing for limitation of volatility of the portfolio;
- Existence of known information or access asymmetry, generating an attractive price for the instrument;
- Absence of obvious signs of the over-heating of the markets on the whole and material probability of its systematic correction;
- Size limitation, not more than 4-5% of the portfolio per instrument as a rule.
Other instruments
- Presence of at least one of the following:
Ability to purchase the instrument at a lower than market price due to an OTC nature of the sale;
Existence of public objective Information, not available to the broad market, confirming an unreasonably low market valuation of the instrument; - Ability to purchase the instrument at an inadequately low price due to a short-term market inefficiency;
- Existence of a potential upside significantly exceeding potential losses, together with the reasonable belief in the high probability of the positive scenario;
- Presence of an obvious arbitrage opportunity bearing low risks;
- Availability of thorough and constant monitoring of the situation;
- Sufficient liquidity of the instrument, allowing for rapid liquidation of the position in case of the realization of a negative scenario.
Products of third parties
- Simultaneous fulfilment of the following criteria:
- The product provides for the cheaper or/and efficient access to the market or/and instruments, attractive for the managers based on criteria stated above;
- Management method is similar to the one the managers would have applied if they were to manage such product, or the product represents a tracker of the market the manager wants to invest anyway;
- The product is managed using the capabilities, expertise, skills and/or information that the manager of ARGO SP does not have;
- The product has sufficient history and historical results correspond to the declared targets; investment decisions correspond to declared strategy and investment process;
- The managers of ARGO can closely monitor the product’s performance;
- It is possible to monitor product management on a continuous basis;
- Costs associated with the purchase and further sale of the product are substantially less than expected marginal benefits from the investment;
Criteria for closing a position
- The position has ceased to be attractive in terms of the criteria described in the previous sections;
- There is an offer to buy (sell for a short position), for a price that realizes the position's potential and makes it not attractive for further holding;
- The share of the position in the portfolio for one reason or another has exceeded the limit set aside for such position, or in connection with the acquisition of another, more profitable, position within a single limit, the aggregate limit is exceeded;
- Market behavior increased the risk of holding a position in the short or medium term to a level unacceptable in the portfolio;
- The market has information that makes the risk of reducing the value of the position in the short term significant regardless of the adequacy of information and its assessment by the market;
- The change in legislation led to a negative change in the value of the position for the fund and/or its investors;
- The liquidity of the position has fallen to a level at which future adequate actions with the position could be jeopardized;
Portfolio manager
Alexander Ovchinnikov
One of the recognized Russian experts with more than 30 years of experience in the financial markets. Since 1993, within the Central Bank of Russia Alexander participated in the creation and development of the Russian sovereign debt market. Then he headed the debt market analysis team of Troika Dialog. Since 2000, he headed the analytical, and trade divisions, was engaged in asset management in the largest Russian and international banks. In 2008 he rejoined Troika Dialog (after 2012 known as Sberbank-CIB). As a Vice-President, he led a project to modernize the Russian debt market. He has a degree of the Financial Academy in international economic relations, a diploma from the Moscow Aviation Institute, diplomas from FRB NY and Carnegie Mellon University.