Trust and Honesty in Investments, or Two Open Questions for Andrey Movchan and Elena Chirkova on the GEIST Fund

If the investment fund you manage can't beat inflation, while the S&P 500 outperforms it by 11% per annum, is it fair to say “our stock fund has much lower volatility than the S&P 500, with comparable returns”? Let's try to figure it out using the example of Movchan's fund.

A little background (or why I wrote this post at all)

At the end of July I posted on my Facebook short post about how Ed Thorp was able to expose Bernie Madoff's financial pyramid 17 years before it burst. In the comments to this post, Elena Chirkova expressed herself in the vein that finding a good fund that will reliably bring you 20% per annum in dollars for years is not a problem at all.

Keeping in mind that Elena is managing Movchan's equity fund called GEIST (Global Equity Investment Fund)I decided to check: does it bring its investors these same 20% per annum, since it is so easy to provide them.

Schedule with Movchan's Group website shows that the base class of shares of the GEIST fund has brought investors 9.5% cumulatively over 2.5 years since the beginning of 2022, which is equivalent to 3.7% per annum. However, the S&P500 benchmark brought only +19.2% in total over this period (7.3% per annum) – so there is no hint of 20% per annum here either, but that is not the point.

Somewhere around here my eye caught the caption to the chart “Value of $100 invested on 07/08/2020”. That is, all the data should have been given from mid-2020, but for some reason the chart only starts from December 2021 – how so? The caption “4 years of history” on the fund page adds to the mystery, while the chart only shows the last 2.5 years – where did the other year and a half go?

Restoring the missing pieces of the puzzle

To unravel this mystery, I had to go to article about GEIST on the Buy The Dip blog from the end of 2021 – that's where the fund's interim results were summarized, and you can also find it there link to google spreadsheetwhere the author regularly updates his results from the very launch of the fund (and not from 2022, as on the site’s “showcase”).

This picture is already quite different from what you can see on the official website. A couple of things immediately catch your eye:

• The GEIST fund's performance (+18%) is hugely behind the S&P500 index (+90%).

• Over the past 4 years, the fund has not been able to even catch up with dollar inflation (gray line on the chart) – that is, in real terms, investors have so far suffered a loss.

The picture above directly contradicts the theses that on Movchan's website declared for the GEIST fund: “Volatility is much lower than the S&P 500, with comparable returns” (Does 18% and 90% sound like “comparable returns”?) “Better than global stock portfolios” (what's better – considering that over the last 4 years the global stock index ACWI has brought +60%?)

One gets the feeling that in order to publish the chart on the website, they simply took the historical period that shows the fund’s results in the most positive light – and then the theses describing the fund were written based on only this time period.

One could assume that the GEIST fund had a dramatic change in strategy at the end of 2021, and the “new fund” has absolutely nothing to do with the “old” one – that's why they decided not to show the “old irrelevant results”. But there are two things that bother me about this version:

1. Right here in a large special edition about GEIST on the Movchan's YouTube channel, Elena Chirkova says that the fund's strategy did change – but they started thinking about it at the end of 2022, not 2021 (and in fact, it was implemented only in May 2023). And a little later She also says that she does not rule out a return in the future to the same strategy of selling put options that the fund followed for the first 2.5 years of its life (it turns out that this period potentially remains relevant for assessing the future prospects of GEIST).

2. Even if the fund had really changed its strategy radically (and once and for all) in December 2021, the correct approach to potential clients would have been to show them the full history of GEIST results – and provide them with explanations on how to correctly interpret these results from the fund managers’ point of view. At least in this way, “inconvenient” results would not be hushed up, and site visitors would be able to draw their own informed conclusions.

The Importance of Ethics in the Investment Profession

When I took the CFA professional exams, there was a huge emphasis at every level on the importance of ethical principles for anyone working professionally in the investment industry. A separate module was devoted to correct presentation of asset management results – and there, literally in the very first examples of openly unethical behavior, there were messages of the following nature:

In no case should one selectively show potential clients only the best sections of historical management results and, on their basis, make general statements about overall or expected results.

In my opinion, the current presentation of the GEIST Foundation's results grossly violates this ethical principle. When I tried When I addressed my questions to Elena Chirkova as one of the fund’s managers, she replied that this was not her area of ​​responsibility – and suggested that I contact her via the contact email address listed in Movchan’s contacts (which is what I did).

Unfortunately, it seems that my letter simply got lost in the spam folder, or did not reach the responsible addressee – at least, I still have not received a response to it in 3 weeks, and the presentation of the GEIST results on the site has remained unchanged.

I want to make an important disclaimer: I have great respect for Elena Chirkova (she was on my channel big interview with her), and to Andrey Movchan (I hope that we will also record an interesting broadcast with him sometime in the future). I also really like the stated principles of Movchan's Group, I will simply quote the words of their senior partner from yesterday's video On their channel:

I am sure that the current situation with the misleading presentation of the GEIST fund's results on the official website arose completely by accident and due to the fatal amateurish activity of an unnamed employee from the marketing department – and Elena and Andrey were simply too immersed in the direct management of the fund portfolios to detect this error in time.

Two open questions for Elena Chirkova and Andrey Movchan

I will be glad if this error can be corrected promptly. Unfortunately, at the moment I do not see any other ways to influence this process, except to publicly address two questions to the Movchan's Group executives:

1. Do you think it is correct to selectively show the GEIST fund's results in its marketing materials, not in full, but only from the point that allows for the most favorable comparison for this fund with the benchmark S&P 500?

2. Do you think the thesis stated on the website regarding the GEIST fund is correct: “volatility is much lower than that of the S&P 500, with comparable returns,” given that over its entire life, the fund has shown an accumulated result of 18% versus 90% for the S&P 500?

Sincerely,
Pavel Komarovsky
RationalAnswer