In March, the Fund was indirectly but significantly affected by the market storm caused by the unlawful expropriation of investor assets in Cyprus. Although the Fund had never had any bank accounts in Cyprus, the entire Russian and CIS equity market, along with the countries in the MSCI EME Index, went into a tailspin, thus bringing losses to the long part of the Fund’s portfolio. While Diamond Age was rated the number one performing fund in its universe in December 2012 and January 2013, it had to give back some of its gains in March, with a negative performance of 13.84%. This performance was worse than that of the salient indices; however, the December and January out-performance was so massive that the Fund somewhat “made up” for these March losses in the preceding months…
But each crisis, including the mini-crisis in Cyprus, presents an opportunity, even in the less than rosy global picture. It is a chance to pick up some very cheap good quality stocks for the longer term. In the near term stories such as Agroton in Ukraine can be shorted, technical reasons permitting (liquidity, ability to borrow stock, etc.). The Fund hasn’t been able to execute on this short trade in this name, but isn’t it a classic? The Cyprus-related crash (due to some of the company’s cash assets being frozen in the Bank of Cyprus) caused a drop of circa 90% in its share price, on top of almost minus 50% in 2012…
The Investment Advisor will use the upcoming May holidays in Russia to reflect on the past two years and try to assemble a top ten list of reasons to buy Russia now, and make a lot of money in the next 24 months. The list will be made available in the April Letter to Investors, due to be published in mid-May.