Ruble Finds Love in an Alabama Startup Fund

Updated on
  • R-Squared Macro Management buys ruble, abandons local bonds
  • Goldman Sachs drops call on ruble strengthening against rand

Some of the biggest asset managers from New York to Paris have scaled back their wagers on the ruble as the Russian currency posts the world’s widest price swings. An Alabama startup investment firm sees it as one of the best ways to grow its fund.

R-Squared Macro Management, which pulled out of Russian local-currency bonds earlier this year just as they went from being among the best performers in developing nations to near the worst, increased its position in the ruble this month to the equivalent of overweight from underweight.

The currency has weakened 37 percent from last year’s high, a move Chief Investment Officer Ankur Patel deemed excessive. Now it’s poised to rebound as investors who pulled out begin to look for value when concern about global growth begins to ease, he said. R-Squared Macro Management forecasts that the ruble will trade at about 70 against dollar at the end of this year, up from its current level around 80.

“You saw foreign investors unload the ruble at a very fast pace as they thought the risk was too high,” Patel said by phone from the firm’s Birmingham, Alabama, headquarters last week. “The Russian currency has a good value to offer, and now that investors don’t have too many attractive markets to invest in, they will go back bargain hunting once risk sentiment stabilizes.”

A rout in oil prices and international sanctions linked to the Ukraine conflict have battered Russia’s economy and triggered capital flight. The currency has weakened 5.5 percent against the dollar this year after a 20 percent plunge in 2015. Three-week implied volatility, a measure of projected price swings, has surged to 28 percent, the highest level among all the world’s currencies, according to data compiled by Bloomberg.

Trading patterns in the ruble show Patel may be right. The currency’s directional movement index, which allows traders to see the trend of a currency using the current high and low relative to the previous day’s range, indicates an upward signal. A measure of the strength of this trend now hovers at about 34. A level above 25 suggests the direction of the trend is strong. A gauge known as moving-average convergence divergence suggests an approaching buying signal.

Firms including Goldman Sachs Group Inc. and OTCex Group remain skeptical. The surge in volatility and deepening rout prompted Goldman Sachs to abandon in January its call on the ruble strengthening against the South African rand and Chilean peso, one of its top trade calls for this year. A prolonged period of Brent crude prices around $30 per dollar could lead the currency to drop to as low as 100 against the dollar at the end of 2016, according to Jean-David Haddad, an emerging-markets strategist at OTCex Group, a brokerage in Paris.

Ruble Bulls

R-Squared Macro Management, which has 10 employees, was founded in 2014 and until the start of its fund in August it designed the investment models to assess macroeconomic risks that it currently uses. Patel declined to disclose the fund’s assets.

His bullish call on the ruble echoes that of UBS Wealth Management, which in January said it is among its top five most-preferred developing nation currencies for 2016. Citigroup Inc. last week said the prospect of oil prices bottoming out is spurring demand for the currency. Hedge funds and other large speculators have had bullish bets on the ruble for the past four weeks, according to U.S. Commodity Futures Trading Commission data. The Russian currency strengthened 0.6 percent to 77.892 on Monday after falling 1.1 percent last week.