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March 3, 2021

03.03.2021-"a Brief analysis of an open-ended mutual Fund "Alfa Capital Technology»"

We are actively developing our own multi-strategy fund, so, of course, we are interested in how our colleagues are doing: what products they have, what results they have. Yesterday, our eyes fell on the open-ended mutual fund of the management company Alfa-Capital under the name "Alfa-Capital Technologies" with the slogan "Investing in promising technology companies of the planet".

Well, it looks very interesting, the yield also seems attractive at first glance. Let's take a closer look at this fund.

Immediately you need to make a lyrical digression – the return of the fund itself is uninformative and practically does not characterize the quality of the management. First, it is not clear how the fund's benchmark has changed during this time (for most investors, this is either the S&P 500 index of large American companies, or the Russian MOEX and RTS indices). In other words, it is necessary to evaluate the quality of the selection of securities in the fund in comparison with a simple index approach. Secondly, any investments in dollar instruments in recent years have shown a profit simply due to the weakening of the ruble exchange rate.
So, based on the fund's stated strategy to invest in technology companies, the Nasdaq 100 index is an obvious candidate for the role of a benchmark. To begin with, to understand whether it is suitable or not, let's compare the top 10 investments of the fund and the index:

We can talk about a similar approach to the composition of the portfolio, the main focus in the OPIF "Alfa-Capital Technologies" is on the same American technology companies. For example, Big Tech – Alphabet (the parent company of Google), Amazon, Apple, Facebook, Microsoft-accounts for 41.0% against the index 39.4%. That is, we observe a similar structure of investments with the addition of some tools that are not present in the index, such as Alibaba Group, or the Invesco Solar ETF.

Then we analyzed the entire investment structure of Alfa-Capital Technologies and the Nasdaq 100 index by sector – we can talk about a clear focus on companies in the technology and communications sectors (76.1% in the OPIF and 62.9% in the index). In general, the mutual fund has 31 securities (out of 44) included in the Nasdaq 100 index-they account for 72.3% of all the fund's assets (in the index, the weight of these shares is 64.8%).

After selecting the correct benchmark to use, we will start directly comparing the results. In order not to complicate our analysis unnecessarily, we will take a period that includes the last 10 years – from January 2010 to December 2020. In the quality of cognitive information, we will add the results of not only the Nasdaq 100 index, but also the S&P 500, as well as all Big Tech companies. For comparability of dynamics, the share price of OPIF Alfa-Capital Technologies is calculated in US dollars based on the official estimated share price in rubles and the exchange rate of the Central Bank of the Russian Federation for that day.

Immediately striking is the strong lag of the fund from the indices, both five times from the technological (do not forget that the last decade was characterized by a very significant growth of almost all hi-tech companies), and twice-from the broad market. You don't even need to talk about the dynamics of individual companies. Moreover, the Alpha Capital Technology OPIF showed greater risk (in terms of standard deviation) compared to the indices, which may be due to a greater concentration in individual securities – in other words, Alpha Capital placed bets on some non-index companies that subsequently "did not shoot".

How did this happen, you ask? Well, it is difficult to single out all the reasons, but one factor certainly had a negative impact on the income of the fund's shareholders. These are high expenses for the remuneration of the management company itself – management fee of 3.5% (of the value of assets per year), as well as up to 0.5% for a specialized depository, registrar, auditor, and so on.

What to do if you, our dear subscribers, really want to invest in the tech sector as a whole? Is it really necessary to pay high commissions for systematic lagging behind the market? No! Fortunately, there are many other options. While in the Russian market, all kinds of mutual funds are widely distributed, investing in American instruments for 3%, 4% and even 6% of the remuneration, in the United States, inexpensive ETFs have long been used for this purpose – an ideal tool for passive investment. We have already done a series of articles on this topic.

For the Nasdaq 100 index, the most popular ETF is the Invesco QQQ Trust with total assets of about $150 billion. Below is a comparison of its results with the benchmark:

Passive funds always have some lag, since rebalancing (bringing the shares of instruments in line with the index) is usually carried out only at the end of the month, and there is also a reward for the fund's management company – in the case of Invesco, the Total Expense Ratio is only 0.2%.

In the end, I want to summarize: Russian management companies offer interesting tools for investing in foreign stocks, but they have such disadvantages as a strong lag in profitability from the benchmark and high commission costs. On the other hand, it is very easy to buy shares of such funds and you do not need access to the American stock exchanges – however, it is now much easier than before. Foreign brokers Interactive Brokers and Exante (this is not advertising) easily open accounts for our compatriots, and some of their Russian colleagues also easily give clients access to the entire variety of global financial instruments.

This article is not an investment recommendation. The only thing we call for is to first analyze all the available investment opportunities as objectively as possible, and then choose the most suitable ones for you.

Author: Atrani Capital Investment Director Igor Rotor.

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