Wednesday, March 12, 2014

Balls Deep - That's How I Roll

Put your money where your mouth is at.

I say I'm a contrarian, so that's what I'm doing now. Take a look at this chart.

Resolution might not be so pretty, it's just a quick and dirty screenshot. I'm actually kind of busy today, but I wanted to document this entry.

My investment vehicle of choice is the HSBC GIF Russia Equity, the SGD class of course. While I would like to have returns hedged in normal circumstances, I guess I think it might actually be towards my advantage to leave it un-hedged. Hedging USD/RUB and then USD/SGD to get a SGD/RUB hedge is just too much time and effort of monitoring, so I won't be doing that.

Anyway, as I mentioned in my previous posts, Russia is looking might fine and attractive to me. Based on the stats on Yahoo! Finance (using RSX as a proxy), it has had annualized returns of -14% for the last 3 years, and it is already down 15% YTD. And if you compare it to the SPY, it has 14% annualized returns for the last 3 years. So if you though the SPY run in the last 3 years was great, you'd love the drawdowns on Russia.

Personally, based on the RSX, I'm looking for an upside target of about 27-30, which would translate to between 20-35% returns, and this should realistically come in within 6-9 months time. I'm not shy to be more of an in-and-out for this contrarian bet. I personally do not find Russia as a country to be part of my core holdings, so this is merely just a value opportunity which I am taking a risk on. However, knowing how deep the last financial recession went, downside is clearly clearly capped to just 50% of my open position now, and that is a huge long shot.

Which is precisely why I am betting against that happening. For that to happen, current YTD drawdown will reach 63% from the current 22% it has already suffered. That would also bring down the annualized 4 year returns to -44%. (THAT'S ANNUALIZED!) I don't know, but I'm out on a limb here making a bet with probability and odds in my favour, that's all I'm saying.

I've already made the trade and booked the transaction into my contrarian trade log book. It would be interesting for me to do a report of my track record in the future. Perhaps when I have more time!

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