Horseman Capital has gone live from the start of July with its latest fund, an emerging markets-focused vehicle managed by John-Paul Burke.
The fund is a carve-out from European Select, the $634 million strategy headed up by Stephen Roberts (see profile). As part of the main fund it has performed well this year, gaining 17.14% to the end of June.
According to Burke, the newly standalone fund operates in a markedly different fashion from a standard global emerging markets (GEMs) portfolio.
“This is not the standard GEMs fund that aims to beat the MSCI Emerging Markets index by 2%,” he said. A long-term thematic investor in the Horseman house style, his view is that the commodity super-cycle that prevailed in the years leading up to the financial crisis is now played out – and that the spin-offs from this that dominate the conventional GEMs portfolio will underperform as the industrial cycle slows.
Accordingly, his portfolio is entirely non-constrained and currently avoids banks and financials in general, as well as manufacturers in industries with over-capacity.
The long book is positioned to invest in economies with limited external funding requirements – with the majority of exposure being in China, which runs a current account surplus in excess of 2% of GDP.
“Within China aggregate savings are vast, and until now banks have been underpaying depositors who effectively subsidise loans to Chinese companies – a cycle that has led to over-capacity,” said Burke.
“Under the new reformist premier, we could well see interest rate liberalisation –which would reward depositors and lead to less funding for ‘old’ industries, which should lead to increased consumption whilst further negating the investment case for ‘old’ industry.”
Burke also aims to add value through the short book, which has seen the fund’s returns holding up well during periods of market weakness.