Financial markets have failed to price in the colossal economic impact of Covid-19 and the extent of its likely spread globally – including a second outbreak in China, according to the investment management team for Vita Nova Hedge Fund (‘Vita Nova’), which is now ranked as the world’s Top Performing Liquid Alternative Mutual Fund over three years by Preqin.
“When GDP data for western economies are announced it will likely shock equity markets into another freefall, as will another inevitable outbreak of Covid-19 in China,” says Jeremy Leach, chairman of the investment management team of Vita Nova and Chief Executive Officer of MPL Asset Management SA (MPAM), its Geneva-based manager.
MPAM believes the nearly 2m people globally who have been diagnosed with Covid-19 so far represent a small percentage of those that will be infected. For example, up to 1.4 billion people were estimated to have caught the Swine Flu in 2009, which lasted for 20 months. China is vulnerable to another outbreak following the lifting of travel restrictions in Wuhan because the rest of the country has been spared so far, while the disease is likely to spread rapidly in India, South America and Sub-Saharan Africa.
Jeremy Leach added: “During the 2008 Global Financial Crisis, governments just had to bail out the banks. Now they must support their economies across the board. The US will likely have to double the US$2 trillion already pledged to support the economy and Europe will need much more financial support than the initial US$ 550 billion (EUR 500 billion) pledged late last week, which equates to one fifth of the amount of money per capita that has already been committed by the USA.”
“This bear market will downtrend for some time and when it finishes, there will be a rapid recovery but western nations will have levels of debt they have not seen since the end of the Second World War.”
The Vita Nova Hedge Fund is ranked as the world’s Top Performing Liquid Alternative Fund over the three years to end-December 2019 in Preqin’s March special report, Top Performing Hedge Funds 2019. Vita Nova’s USD-denominated Arbitrage Share Class delivered a net annualised return of 34.73% over the period.
Vita Nova’s April factsheet shows that the Fund is an outstanding performer with an enviable track record. Its USD-denominated Arbitrage Share Class has delivered a total return of 151.68% net of all fees since its launch in August 2014, which is equivalent to an annualised return of 26.77%. Over the 12 months to end-March it delivered 11.88%, including a positive return of 0.77% in March when markets globally suffered some of their worst ever falls. It is one of the top performing funds in its sector, regularly outperforming its benchmark, the Eurekahedge Small Hedge Fund Index (Bloomberg Ticker – EHFI256). For example, over the 12 months to end-March, the Fund beat the index by 13.69%, an average of 1.14% per month.
Vita Nova aims to achieve long-term capital growth by identifying short- to medium- term investment opportunities with inherent pricing weaknesses and the potential to improve over time as well as those assets that, when circumstance present themselves, can be acquired at a discount to their prevailing value. It has been divested almost entirely out of equities since the end of 2018, when MPG anticipated that a major event-driven correction was on the horizon. It is still positioned defensively.
The investment management team may rely on economic forecasts and analysis in respect of interest rate trends, macroeconomic developments, global imbalances, business cycles and other broad systemic factors that may lead to arbitrage and alpha opportunities.