Diamond Age Russia Fund: Monthly Letter to Investors – September 2012

In September, the Fund recorded a positive performance of +2.13%, after positioning its investment portfolio in August for an anticipated QE3 announcement the following month, although it gave up some of its mid-month gains in the second half of the reporting period. The Fund once again reconfigured allocations slightly, having (1) eliminated short commodity hedges, (2) increased long exposure and (3) increased Russia-specific weighting. With the ECB and Federal Reserve effectively announcing an unlimited global QE and sparking a “risk on” trade world-wide, the Investment Advisor considered it prudent to participate fully in high-beta assets such as Russian stocks, in addition to a more positive Diamond Age view about Russia in general – a view of “not so bad” when dissecting the current government policies in relation to another planned round of privatization, a continuation of the current prudent
macroeconomic management and the realization that the status quo in Mr. Putin’s “fourth” term of office cannot be sustainable. This realization, after so many months of public discontent, pushed the Russian political elite into self-preservation mode, not along the lines of the “Arab Spring”, for example, but along a much more positive scenario, albeit still extremely far from the ideal one. But even a non-ideal scenario in the shape of a significant improvement on the stagnating “status-quo” can drive company valuations much higher. And it will.


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