Results of funds and strategies for October 2024
Andrei Movchan
Nov 20, 2024THAT DAMN UNCERTAINTY…
Remember the joke about the jealous husband, the private detective, the wife, and the Georgian (why Georgian??? Probably because they are usually handsome, manly, and gallant) with flowers, ending with these words?
I think now it can be told differently. The Democrats managed to change the candidate four months before the elections bypassing the legitimate procedure (and Americans take legitimacy very seriously), present a program, half of which is built on unfair attacks on Trump (they could have come up with a hundred fair ones, but they didn't), and the other half on promising to make things worse for everyone and cause conflicts, "to make it better," stir up incredible hysteria in the media, which clearly annoyed pragmatic Americans, and demonstrate their complete impotence in all the issues that really concern their compatriots. The Republicans, however, managed to come out with a program (albeit declarative) that makes sense and serves the interests of various segments of society — a program "for all of America," unlike the Democrats' program for "selected bureaucrats and minorities"; behind their legitimately elected candidate stood a whole echelon of "American heroes" (businessmen, military, scientists, athletes), not a gathering of media celebrities and pop stars, like the Democrats. But all of October, the global investment markets were in doubt: who would win?
The Republicans won (I wouldn't consider this a victory for Trump, not only because the Reds took both the Senate and Congress, but also because the Republicans have many strong figures independent of the 47th president, and one of them will lead the Senate, in particular), fears dissipated (or materialized???), and the markets suddenly realized that in American democracy, the sum doesn't change too much from the rearrangement of its components; "certainty" turned out to be uninformative.
But this is short-term. And in the long term, in my opinion, the victory of the Republicans and Trump (I already wrote that the vote was not for him, but against Harris and a little for the Republican platform) speaks of America retaining its place as the leader of the "free world." Once again, it is the USA that first begins to solve the pressing problem — while Europe is still bathing in the left agenda (Labour in the UK drives out the rich and enterprising abroad, the Greens in Germany are finishing off energy and industry, the socialists in France seriously plan to introduce a tax buyout for those leaving and global taxation for passport holders), the States said "enough" loudly and confidently. I hope Europe (as it always used to be) will catch up.
The election results are long-term good for the American economy (and, paradoxically, for the European one — because Europeans will have to get moving). And what is good for the economy is ultimately good for the markets, so I would look at the current situation with optimism, but cautious — no wonder even Goldman Sachs predicts a decade of stagnation for the American stock market.
About the decade, I don't know, but in October, amid "uncertainty," the S&P 500 lost almost 1%, emerging market stocks (MSCI index) fell by 4.3%, and the world stock index excluding the US — by as much as 4.9%. More than 1% was lost by the ETF HYG — an indicator of the cost of high-risk short-duration debt securities; JP Morgan EMBI+ went down by 1.64%, and the corresponding ETF — by 2% (the record fall in the debt world was set by AGGG — the global long bonds ETF: it lost 3.2%). I highly doubt this is the "beginning of a trend," more likely a short-term phenomenon; nonetheless, October on the markets "didn't go well."
***
Movchans’ Group products, although they protect investors from losses, still cannot show results completely detached from the markets. Only the LAIF strategy (LAIF, FLAG funds, separate accounts) as usual ignores the market — the fund shares rose in October by 0.45–0.57%, and investors in the classes with the highest fees have already received 7% net since the beginning of the year (despite the fact that 100% of the weeks for the funds are profitable for the entire existence of this strategy). Finally, we received a well-deserved award — 2nd place among all funds in the world in this class for October (according to Barclays). This is already the second such award — congratulations to the managers!
The ARGO SP fund lost slightly — the decrease in share value was from 0.25 to 0.33%. Unpleasant in itself, but the root of this decrease is the strong growth in the yield of the ten-year treasury bond portfolio — clearly a temporary matter during a period of rate cuts and does not concern us in principle. Moreover, in just one month, ARGO SP outperformed market benchmarks by 1.5–3%.
GEIST SP lost 0.88–0.9% in October — slightly better than the S&P 500 and noticeably better than global indices.
ARQ SP showed a decrease in share value by 0.3–0.4%. This is a natural consequence of the downward movement of the S&P 500, but not only and not so much: the main "loss" is paper — a consequence of the accounting peculiarities of coupons paid at the end of the month but received at the beginning of the next. In November, the coupon will already be accounted for, and those who subscribed to ARQ SP from the first of November were lucky. (Spoiler: as of November 15, the ARQ SP share value estimate from the beginning of the month is plus 1.6%).
The FISTR strategy, of all our products the most dependent on the movement of fixed income markets, worked well in October — the decrease in portfolio values was 0.65–0.74% against the downward movement of relevant indices by 1.1–3.2% (and even the US short treasury bond index showed minus 0.62%!). Let's hope that FISTR will now show outperformance in a rising market.
And of course, COSSACK. The fund continues its very successful year: plus 1.1% for October and already 7.5% net for investors since the beginning of the year.
***
November has so far brought nothing to the markets except that very certainty. Stock markets have gone slightly above even early October levels, debt markets have rather stabilized around the end-of-month levels. This is easy to explain: if the Republican victory is good for the economy as a whole and for businesses in particular, they still have to formulate their monetary policy, and there is a great risk that rates will remain high (monetary policy leniency is more characteristic of Democrats), inflation will not reach target levels, and debt yields will not fall.
We will wait for appointments (including in the Fed), Senate decisions, statements regarding monetary plans. Our position will remain moderately optimistic about high credit quality debt markets and moderately pessimistic about low-rated markets — spreads are so narrow that their widening (inevitable over time) may outweigh even the rate cuts, whatever they may be.
As for stocks: despite the impossibility of guessing and the futility of "market overvaluation" assessments, even the economic prospects under Republicans cannot, in my opinion, unequivocally speak in favor of a continued rally. The American stock market seems dangerous, the forecasts of leading houses about stagnation are realistic, and structured products on the S&P 500 with a coupon of 7.5% and a barrier of 70% (such as we buy in the ARQ fund) look like a more interesting investment than just investing in the index.
And as usual, I cannot fail to add that market-neutral products are an excellent solution for periods of instability, and hedge fund portfolios confidently outperform broad markets when the latter stagnate or grow moderately. That's why we have one fully market-neutral fund in our palette, two with low correlation, and two more that are essentially hedge fund portfolios. As you can see, these combinations work quite well. *** There are still 42 days left until the end of the year, but around us (at least in Europe), the world is confidently preparing for Christmas. A little more — and activity will begin to decline. But my next letter still promises to be informative — much of what is happening in the world should be resolved before the holidays. Meanwhile, we continue to manage assets — for you and for ourselves.
