Equity funds were taken by surprise by the sudden Stock Exchange slump in the first six months. Some reacted by curbing their exposure to stocks to levels specific of balanced funds, another part invested on the derivatives market in Sibiu, while a few of them took to foreign markets.
One of the most frequently used investment strategies during stock market correction periods was a cut down in assets earmarked for placements in listed stock in a bid to hedge the fund from corrections.
In the first half, the main index of the market, BET-C, lost 29% of its value, while BET-FI, the index gauging the performance of the SIFs, dropped by 40%.
Under the circumstances, an exposure of over 80% on the Stock Exchange, typical to equity funds, would have brought significant losses to the equity fund. Equity funds invest over 66% of assets in shares.
One of the sharpest reductions in exposure to the stock market was registered by Fondul Oportunitati Nationale (FON) equity fund, managed by Vanguard Asset Management, whose placements in shares ranged between 40% and 65% of assets. In H1, FON reported a 20.7% decline. Another fund that visibly slashed its exposure to stocks was KD Maximus, which at the end of the first half had 52.8% of its assets invested in shares. KD Maximus, managed by KD Investments, ended the first half with a 27% unit drop.
Not all equity funds curbed their exposure to stocks, however. Active Dinamic, managed by Swiss Capital, ended the first half with 81% of assets invested in stock, higher that the exposure reported at the yearend. In the first half, it reported a 31.1% drop.
Banking deposits were for some equity funds the handiest refuge from stock exchange corrections. This came amid banking interest rates following a steadily rising trend, as well as amid a little liquid fixed income market.
For equity funds that bet on a decline of the Bucharest Stock Exchange (BSE), hedging on the derivatives market of Sibiu was the investment strategy used to cope with corrections.
By law, investment funds' exposure to derivatives should not exceed 10% of assets.
"Hedging is a way to protect the fund from declines, but it also eliminates any growth possibility. It can be viewed as a bet that the market will continue to fall," said Florin Dolea, CEO of Pioneer Asset Management.
Managers were not so interested in placements on foreign markets meant to counteract domestic market declines, which were among the steepest in the region. BCR Asset Management and Raiffeisen Asset Management were the only managers that invested on foreign markets.
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