Aidan Kearney and Graham Duce at Credit Suisse have removed Neptune Russia from their Multi-Manager Equity Managed Portfolio because of what they regard as its changing risk profile.
Robin Geffen’s GBP 221m Russia & Greater Russia fund has fallen more than 50% over the year to December 1, according to Morningstar.
Kearney says: “We were concerned that the facts changed. Russia started allowing its currency to depreciate and then put up interest rates to defend the currency. We thought risk had increased.
“It is no longer about deleveraging the oligarchs, it became wider than that. We underestimated the degree of leverage in the market from the ‘minigarchs’, and the extent of hot money in the market – that is, international money that did not hang around when things got tough.
“We think removing the position was the prudent thing to do. It was not to do with [Russia’s invasion of] Georgia, although that did not help.”
Broadly speaking, the fund’s emerging market exposure did well for it in the first half of the year but was expensive in the second half, Kearney says. Equity Managed has 5% in an Ignis International Hexam emerging markets vehicle run by Bryan Collings as well as Asia offerings from Veritas and Thames River.
The Equity Managed mandate was designed with a bias towards Britain. When Duce and Kearney took the reins in 2007 it had 45% invested in Britain, but over the course of this year the managers have been reducing their domestic exposure to 25%. This is because of a negative view on sterling and preference for other regions, notably America.
Kearney says he has been adding to his America weighting at the expense of Britain and continental Europe, with 18% in America and 10% in the continent.
“Experience has taught me never to underestimate America’s ability to reinvent itself,” he says. “The financial authority is being proactive to improve the situation with the $800 billion (£540 billion) stimulus package.”
Kearney has access to America through funds such as Janus US Twenty and Martin Currie North American Alpha. “The Currie fund has nothing in financials and is underweight healthcare while the Janus fund is more cyclically sensitive,” he says.
“We also hold a JPMorgan 130/30 fund, which brings something different to the party. It is a 200-stock portfolio so it has a broad footprint. It is running a short book at 17%.”
Kearney and Duce have increased the fund’s cash position. It is 18%, from about 10% at the end of the third quarter, reflecting the managers’ cautious stance.
“Macro and company level news flow is still very bad,” Kearney says. “UK and US unemployment levels are high, and at the corporate level there have been capital expenditure cutbacks, profit warnings and dividend cuts. However, we are starting to sense that this could now be priced in to attractive valuations.”