FMG (EU) Rising 6 Fund lost 3.8% in the 2nd Quarter of 2017
The FMG Rising 6 Fund had a disappointing second quarter in 2017, but still ended the first half of the year in positive territory. The general upward trend in Emerging Markets continued, with most markets rallying as we continued to see a risk-on mode by investors.
The positive contributors to the Fund where Mexico, where we opened a small (5%) position during April, China and India. In particular, the big event for China in Q2 was MSCI’s announcement for the inclusion of 222 A-shares, with 0.73% weight, in the powerful MSCI EM Index, which is followed by about $1.6 tn in assets. It has taken a long time for MSCI to arrive at its conclusion to include domestic China A shares and it marks an important milestone for all EM focused global investors.
Our single largest negative contributor during the quarter was Brazil, with the Bovespa down 9% for the quarter. Our 20% allocation suffered considerably during May when, against all odds, Brazil plunged back into a political crisis following reports that President Michel Temer was embroiled in an alleged cover-up scheme involving the jailed former speaker of the lower house of Congress. The market reacted by dropping 20% overnight, when one of the country’s largest newspapers reported that a secret recording exists of Temer approving a payment to Eduardo Cunha, the mastermind behind last year’s impeachment of former president Dilma Rousseff. The market has since recovered slightly as details of the situation faded, and we sold back into this uptick to reduce our positon to 15%.
We do however remind investors that we have been correct to enter a Brazil position back in February 2016, riding a 20% allocation on a massive rally of 125% just before this setback.