The “Crimea” Edition: “Russia and asset prices go South”
In March, the Fund’s portfolio lost ground and NAV dropped 16.25%. However, for a geopolitical event of this magnitude, this result was painful but predictable – what else could be expected of a long-biased portfolio, constructed with a long-term view to take advantage of record-low valuations of Russian assets, not seen since the trough of the 2008 crisis? However, as we all saw, whatever is cheap can get significantly cheaper, and this time geopolitical risks of astronomical magnitude materialized in full force.
Without taking sides in politics, it is the job of the Investment Advisor to protect the portfolio to the largest degree possible during any such manifestation of risks (this time – of the political risk), and to take advantage of any investment opportunities which arise following this once-in-a-decade valuation gap. In March 2014 these two tasks came into conflict, at least over a one-month investment horizon.