Following the current situation with coronavirus epidemic not only in Czechia but in the whole Europe, we would like to evaluate the past development of the global financial markets and its potential impact on the performance of our funds.
Especially equity markets recorded the largest declines since the last financial crisis in 2008. For a better understanding of its depth, note that the S&P500 index, which often measures the performance of the entire US market, has erased all the profits gained since the beginning of 2019, in just 3 weeks. Governments and central banks all around the world are trying to calm the situation down through various measures, rescue packages and interest rate cuts.
First of all, we would like to assure you about the smooth functioning of our company, without any impact on our clients or business partners. The REDSIDE team intensively monitors and evaluates the current situation and implements all the necessary measures. In the early stage, we have taken the strategic steps needed to keep our company running without any limitations (strengthening IT processes for home-office, data security, limiting business trips abroad, creating a step-plan for returning employees from abroad, and many other measures). Our company has long been profiled as a manager of alternative assets that are mostly uncollated with the developments of financial markets trading traditional financial instruments such as stocks, bonds or commodities.
What is a potential impact on REDSIDE funds?
“The global coronavirus pandemic does not affect the performance of NOVA Green Energy. The fund sells produced energy at states’ guaranteed prices (Czech Republic, Slovakia, and Hungary). However, should the production be significantly reduced, it is necessary to realize that the share of renewable energy in the energy mix is around 10-15 %. In addition, these resources have preferential access to the electricity grid, so I do not see the potential risk of influencing the assets of our fund,” says Ondřej Žídek, manager of NOVA Green Energy fund.
“The properties belonging to the portfolio of NOVA Real Estate fund („Fund“) are leased on the basis of long-term, triple-net lease agreements. Hence the situation is legally quite clear for the Fund. In the case of the blanket closure of offices or business premises enacted by the ruling decision of the administrative authority (Government), the landlord will breach his obligation to allow tenants to use the premises. However, as it is for reasons beyond the control of the landlord, it is therefore not a defect of the subject of the lease. The tenants cannot claim any discounts from rent. Quite on the contrary, the tenants are obliged to continue to pay the rent. Cases of delayed payments of rent do not pose any major risk in the short or medium-term for the Fund, as all the lease agreements are secured either by cash advance or by a bank rental guarantee, always equal to 3 months' rent,” says Tomáš Berka, manager of NOVA Real Estate fund.
"In the case of ARCA OPPORTUNITY Sub-Fund 1, the correlation with the equity market is limited mainly thanks to the high portion of alternative assets which have little or no direct dependence on traditional financial markets. Hence, the majority of the portfolio is not affected by the current negative market sentiment, equities represent only 15 % of the holdings. On the other hand, the equity-focused fund ARCA OPPORTUNITY Sub-Fund 2 holds mainly stocks with a high dividend yield in defensive sectors, which in our view are strongly undervalued currently. Once the market sentiment stabilizes, we expect these stocks to attract increased attention relative to the other sectors and their price to converge quickly to their fundamental value. The assets of the NOVA Money Market fund are mainly private loans to third parties for the purpose of refinancing retail and other receivables. These loans have a fixed interest rate and their value is independent on the global financial markets,“ says Karin Šoóšová, manager of ARCA OPPORTUNITY and NOVA Money Market funds.
We will keep you informed about further development. February performance of our funds will be published in the upcoming days on our website www.redsidefunds.com. There will also be professional comments from our fund managers about their respective funds.
We appreciate your trust and please let us know if you have any questions.
