Investment objectives, strategy and policy
The management of the assets of the Mutual Fund UG Market Optimum is consistent with the target allocation provided in the prospectus, namely – up to 50% of assets can be invested in high-risk instruments (mainly stocks issued by Bulgarian companies, shares, rights, derivatives). The remaining assets are intended to provide liquidity and reducing portfolio risk by investing in cash deposits, government securities, corporate bonds and other fixed income instruments. This target allocation is undergoing some modifications due to both the current state of the financial markets (market timing), and medium-term projections of the management. Regardless of the tactical changes in the allocation, the risk profile of the Fund remains typical for a balanced fund – the investors of the fund bear moderate risk.
The proportion of more risky assets (shares and rights) in the portfolio at the end of 2015 decreased to 29,43% from 38.33% an year earlier. The reduced exposure in high risk assets reflects our expectations for a volatile financial markets in the medium-term.
As a rule of thumb, our favorite investments are primarily actively traded instruments as long as they comply with the condition to have a fair value that is sufficiently higher than the current market price. That approach though doesn’t exclude investments in financial instruments that are not traded heavily, but in the same time offer significant attractive discount from fair value.
In 2016 our strategy remains moderately conservative which implies that our tactical asset allocation will remain a bit more defensive than usual. Nevertheless our philosophy in managing the fund has never changed – we do not follow blindly the market trends and fashion, but rather seek value where other investors rarely look.
Although the mandate of the fund allows for an asset allocation up to 50% in stocks and other risky instruments, over the last six or seven years we have adhered to a more conservative approach. In certain periods that was not the most profitable strategy, but, in the long run, exactly that style managed to protect the assets of our investors from serious losses. Without making any promises for the future, it’s worth noting that UG Market Optimum has recorded positive return in each calendar year since its inception in June 2008 up until the end of 2014. The first annual decline in the NAV of the Fund was recorded in 2015.