Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

Why ACPI is betting big on Russian bonds

Why ACPI is betting big on Russian bonds

Intense scrutiny from the international community and the threat of far-reaching sanctions do not undermine the fundamental strength of the Russian bond market.

That is the view of Daniel Moreno, head of emerging markets fixed income at London-based boutique ACPI Investment Managers.

While other managers have either cut their Russian exposure or warned over ‘absurdly cheap’ valuations, Moreno has increasingly added to his Russian holdings over the past six months.

‘There is one thing that is a clear negative and that is the political situation, meaning the geo-political situation. Russia is at the forefront of lots of discussions because of criticism and pressure from the United States and the EU, which are trying to push Russia into a corner.’

‘Even though it is particularly hard to analyse the outcomes, we are thinking this will be seeing a stabilisation within six months or so.’

Moreno assumed responsibility for the ACPI Emerging Markets Fixed Income Ucits fund in January. He took over from Alia Yousuf, who subsequently joined ING IM.

Under Moreno’s stewardship, the fund has returned 8.19% over the six months to the end of June 2014. This compares to a 7.6% rise by its benchmark, the LCI ML HY/JPM EMLI+/JPM EMBI+ (1:1:1).

He attributes a large portion of this outperformance to the returns generated by exposure to Russia over a turbulent period. ‘We hold assets that we believe have value and, back in January, Russian bonds didn’t have value.’

'We sold out of our allocation. What we didn’t expect was that two months later they would become one of the cheaper emerging markets. So we took that opportunity to reinvest in Russia beyond the level we had held in January.'

Betting big

Russia is currently his largest hard currency bond exposure at around 10% while also being Moreno’s biggest local currency play, with it making up 5.1% of the fund. He predicts this exposure will continue to drive performance.

'There are several reasons why we are optimistic on Russia. Valuations do not correspond to the fundamentals and positioning is very light. Russia still has a very low level of debt to GDP and large amounts of FX reserves. Against that they also have a very strong middle class. With around 60% of the population being classed as middle class.'

Another change Moreno made upon taking over the fund was to increase the frontier markets exposure. He now allocates up to 20% in frontier market countries, while he has also increased the investable countries from 20-25 up to 45.

On a three-year basis, the Dublin-domiciled fund has returned 12.2% while its benchmark rose 27.5% over the same timeframe.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Related Fund Managers

Alia Yousuf
Alia Yousuf
10/11 in Bonds - Asia Pacific Hard Currency (Performance over 3 months) Average Total Return: 2.95%
Daniel Moreno
Daniel Moreno
33/36 in Bonds - Emerging Markets Global Local Currency (Performance over 3 months) Average Total Return: -4.54%
Citywire TV
Citywire TV
Play Investment Pulse: the highs and lows of 2014

Investment Pulse: the highs and lows of 2014

This week's Investment Pulse looks back at some of the biggest stories of the year as well as looking forward to 2015.

Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter