A month ago, I publicly voiced several questions to Andriy Movchan and Elena Chirkova, which related to their GEIST stock fund. After that, there was a long (already non-public) correspondence with Movchan’s marketing department – I am publishing its results.

A brief background

At the end of August, I wrote a small note with public questions to the representatives of the investment company Movchan’s. They related to the information posted on Movchan’s website about the historical results of the GEIST stock fund. In my opinion, potential investors and site visitors may have been misled about two things:

1. The GEIST results were not shown since the launch of the fund, but from 01/01/2022 – that is, from the point when the fund began to overtake the benchmark index S&P500 (after a long period of lagging behind it). At the same time, no justification for choosing such a reference point was given.

2. The juxtaposition of the phrases “4 years of history” and “Volatility significantly lower than the S&P500 with comparable returns” may have given investors the false impression that the GEIST fund has shown similar returns to the index over its lifetime (when in fact the fund has lagged by about 13% per annum).

How did it all end?

Our initial communication somehow didn’t work out (as you remember from the last note), but a few days after the release of the material, the head of Movchan’s marketing department contacted me and tried to answer the questions I had. As a result of this dialogue, Movchan’s team conducted a series of internal discussions and the GEIST fund page on the company’s website was adjusted.

First, the reference point for demonstrating the results of the fund was corrected from 01.01.2022 to 01.07.2023and an explanation was added under the schedule:

The GEIST fund was launched in July 2020. In 2022, a decision was made to change the strategy and work began to transform the fund into a fund of equity funds (investing in third-party funds). By July 2023, the share of investments in third-party funds has become significant (more than a quarter of net assets), and we consider July 1, 2023 as the date for a change in strategy.

In my opinion, such a performance is correct. The reference point 01.07.2023 is not chosen arbitrarily, it really corresponds to public information about the date of the change in the strategy of the GEIST fund. Previously, the fund managers made active investments independently, and since mid-2023 GEIST has turned mostly into a fund that invests in other funds. It turns out that the most relevant period of historical data for evaluating the results of the current strategy by potential investors really begins somewhere from July 2023.

It seems to me that an even better solution would be to show the full history of the fund’s results on the website, and at the same time split it into two parts (before/after the strategy change). But the current perception cannot be called incorrect either (especially taking into account the fact that those who are going to invest money in GEIST are still obliged to reveal the whole story in full).

Secondly, part of the phrase about “return compared to S&P500” was removed from the site header. I no longer see any inconsistencies in the current wording:

A small spoonful of tar

Before that, all the discussion revolved around the GEIST fund, but Movchan’s still has the Absolute Return ARGO fund. Since 2021, this fund has undergone a similar strategy adjustment: it switched from purely “independent” investments to investments in other people’s hedge funds.

However, the approach to presenting the change in strategy is chosen differently: a footnote about this event is also added below the graph, but ARGO results are shown since the fund’s inception in 2016.

To me it looks something like “the ARGO fund outperformed the benchmark from the start, so we will show the full story for it; and the GEIST fund fell catastrophically behind the benchmark in the first two years – therefore, for it, we will take the moment of strategy change as a starting point.”

At the same time, as I write above, I like the approach to showing the results of ARGO (without cutting off “extra” pieces of history) even more, but in general both options look okay separately. The question is only the inconsistent application of different approaches in similar cases – as if the choice of one or another option is primarily due to the logic “it is more correct to choose the one where the comparison with the index looks more beautiful.”

Movchan’s representatives commented on their decision as follows: “We do not consider the change in ARGO’s strategy to be so fundamental, deviations on the debt markets are significantly less, and the share of funds in ARGO does not exceed 50%.”

It seems to me that this contradicts the above-mentioned approach for the GEIST fund, where exceeding the 25% threshold of the share of external funds in the portfolio was recognized as a significant change in strategy. Well, okay – in general, this moment is not so super-critical.

In the dry residue

I’m glad that in the end Movchan’s responded to my questions in the most dignified way: they understood the situation in detail and made adjustments to their marketing materials where necessary.

The idea of ​​investing in their GEIST fund if you want exposure to the stock market still doesn’t sound good to me (since the strategy change it’s back to almost half the S&P500) – but at least the fund is disclosed on website is correct.

At the same time, we also agreed to record a “live” interview with Andriy Movchan for my channel in November, when he will next be in Cyprus. So, if you have ideas for interesting/sharp questions for him – feel free to write them in the comments, I will try to take them into account when preparing for the conversation!

PS After the publication of my previous article about Movchan’s, investors in their funds were found in the comments: among them there are all kinds of people – both satisfied and not so satisfied. I’m linking to both so you can judge their experience for yourself. =)