Asia Pacific Intelligence

Stratton Street offers renminbi exposure through award winning fund

Friday, March 08, 2013

Andy Seaman

Andy Seaman, Partner at Stratton Street Capital and Portfolio Manager of the firm's award winning Renminbi Bond Fund (RBF) - the first such product in the field - and the WONDA Bond and Currency Fund, explains that for them, the renminbi story is a multi-decade story.

The firm has gone to over $1.9bn in assets since launch just over five years ago, and the RBF returned 25.32% in 2012 and has stood at number one for all fixed income, dollar denominated funds over five years, three years and currently stands second over one year.

"Whenever people worry about movements in the renminbi, we remind them that it's nothing like as volatile as the Australian dollar or the Brazilian real. The point is that any country that grows as fast as China grows will in time see its currency appreciate and that story will go on for many decades." Currently China represents 9% of world GDP and it is predicted that by 2050, that figure will stand at 25%.

Seaman draws comparisons with the yen, back in the 1970s, which has seen significant appreciation over that period. And the renminbi story is a UK story too, with London overtaking Singapore as a renminbi trading centre, second behind Hong Kong. "It will be the European centre for trading renminbi" Seaman says, quoting HSBC predictions that in the future 2013 will be remembered as the year of the renminbi.

Stratton Street's range of hedged and long only funds offer exposure to the renminbi - which can be a difficult market to crack for external investors - and were designed to provide that exposure to institutions and individuals. They are increasingly getting calls from institutions that realise that China is such a big economy and that it must be represented in their portfolios. "Leaving China out is equivalent to saying I have no exposure to the dollar" Seaman says.

Currently, RBF is up 0.34% to end January. The firm reports that Chinese GDP figures were released in January, with growth at 7.8% for 2012, but with a higher than expected fourth quarter figure of 7.9%, up from 7.4% in the third quarter, while the statistics bureau said that "overall the economy has been stabilising".

"During the month, the People's Bank of China fixed the renminbi at 6.26910 against the dollar, an eight month high. The main reason for this was the higher anticipated data. At the end of the month, the fixing was slightly weaker at 6.2795, however, over the month, the renminbi traded 0.19% stronger against the dollar. We expect this trend to continue through the year as the Chinese economy rebounds" Seaman writes.

His other fund, the WONDA Bond and Currency fund is a long/short fund, long wealthy nations and short things the firm is negative on. Currently, that includes the Australian dollar.

"We're expecting a downgrade this year from AAA to AA which will cause a shock to the system" Seaman says. "The Australian current account has been in deficit every year for the last 30 years - it's never earned more than it's spent and Australia has the highest property to average income ratio in the world, meaning it has a property bubble."

"Australians can only pay off their mortgages if they have no living expenses", Seaman says, "so most are massively over-mortgaged and there is an interest-only perpetual mortgage product available, implying that financial institutions no longer expect Australians to pay off their mortgages".

This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.