Venus Capital Management is proving relative value strategies can generate consistent returns in emerging markets, reports Kris Devasabai.
The Venus Relative Value Fund aims to generate low-volatility returns by arbitraging temporary price inefficiencies in emerging markets.
It is an unusual approach that largely ignores the emerging markets growth story which has captivated investors over the past decade.
However, Vik Mehrotra, founder and CEO of Venus Capital Management, firmly believes relative value strategies can outperform directional investments in the emerging markets on a risk-adjusted basis over the long term.
“Investors are so focused on the growth potential of emerging markets that they tend to overlook the relative value opportunities,” says Mehrotra.
“We like the emerging markets because they are hugely inefficient. The regulations are still evolving, the people tend to be more emotional and the price swings are wider. It is an ideal environment from a relative value perspective.”
The Venus Relative Value Fund has posted average annual returns of 7.94% since inception in August 2008 with standard deviation of only 3.47%, giving it an impressive Sharpe ratio of 2.1.
Over the same period the HFRI Emerging Markets Index showed a negative annualised return while the MSCI Emerging Markets Index registered annualised gains of only 6.56% with extremely high volatility of 34.26%.