The Hungarian forint has to weaken. There is just no other way to boost growth

There is a huge probability that Hungary will pursue a forint weakening policy – says Viktor Zsiday, a portfolio manager. He says there is just no other way to generate growth in the short run. Investors favor risks as long as returns are up. On the other hand if their portfolio is down 5%, they scream and shout. The fund manager aims to exceed the return of the so called risk free assets using a low volatility approach. This article came out in Hungarian on privatbankar.hu.

You wrote several blog posts lately about the Hungarian forint. Do you feel the same way about the currency?
I still think the Hungarian forint is pretty strong. In my opinion, there is a high probability that we will see rate cuts which could lead to a weaker currency. I believe the concept has not changed.

The government should generate growth if it wishes to get reelected. I believe other than weakening the currency and boosting export revenues there is no other way to achieve that in the short run. The point is that the economy has to pick up. Either a weaker currency or the „unorthodox” policy starting in the spring of 2013 could lead to that. Rate cuts and other unorthodox measures are expected. It will be important to see who the new chairman and the vice chairman of the Hungarian National Bank will be.

Does your view of the Hungarian forint effect the way you manage the fund?
In the fund that I manage (Citadella) the EURHUF is just one of the many prospective instruments to trade. It is a forint denominated fund. When the EURHUF was trading above 300 we thought we might convert the liquid forint denominated assets of the fund into euro but as the base currency of the fund is euro and since we aim to make money in that currency we did not do it.

Since this is a forint denominated fund the EURHUF is just one of the prospective trading instruments like the S&P futures, for instance. On the other hand it is not an important instrument since it is liquid and you cannot place a stop loss for the night.

Let’s discuss the asset allocation of the fund.
90% of the assets are in short term government bonds and 10% is in futures trades. Each fund manager should figure out what he or she is better at than the rest of the field.

The majority of the assets has to be in cash equivalent positions because we only place trades where the risk is easily manageable. We only invest in liquid markets and we only risk one thousand of the fund per trade. As long as the markets are operating – at times they can close as well – their risk is limited. Should we place currency trades the risk would be different.

The volatility of our fund is not high but its return exceeds the return of a bank deposit.

It is a trend following fund. We trade with the trend. If the trade is profitable we increase the size of the position. In case the trend does not act in our favor, we do not lose loads of cash. We have several risk management methods. The goal is to minimize losses.


One of the most important risk management methods are stop loss orders. What if there is a gap (a jump in the price)?
We trade markets that are open 24 hours. Gaps usually occur on weekends. (A “Gap” is a term used to describe the condition when a stock opens at a higher price than it closed the prior day. – the editor)
It is useful to have knowledge of history to figure out what the future might hold. The Hungarian National Bank, for example, only changed the base rate by 25-50 basis points but taking into consideration that Hungary is an emerging market country and the fact that in crisis situations there were also 3-5 percent changes in the base rate then we know it might happen again; therefore we have to take it into account.

Changing the size of the trading positions is also a risk management method. In the fund we open such positions where we can manage the risk even if a gap occurs. There are factors we cannot take into account. For example, if an atomic bomb hits Los Angeles. Such thing occurs once a century. Position sizing and stop loss orders are useful in ordinary market environments.

What about the risk tolerance of the investors?
Every investor in Hungary would prefer a return of 30-40-50% but they do not want to lose. Investors claim to have risk tolerance. But when their portfolio is down 5% half of the investors go away. A good example would be George Soros who achieved an average annual return of 40% in the ’70s which is unbelievably good. When he was down 22% in a year in the early ’80s half of his clients turned their back on him. Investors favor 40% returns but do not tolerate losses.

Do you trade based on fundamental or technical analysis?
I usually have a fundamental view of where markets are headed and when I am right I try and enter the market using a technical approach.

So, basically it is a „mixed” approach.
Well, I believe you cannot enter the markets and manage risks based on a fundamental approach. On the other hand, personally, I cannot place a trade only based on technical analysis because I have to convince myself there may be a trend on a specific market.

Can you talk about the difference between your fund, Citadella and the portfolio of your corporation Plotinus? In case of Plotinus regulation might not be that strict.
Well, in Plotinus there are long term investments as well, fundamentally undervalued stocks and private market investments as well. Regarding the future positions there is no difference between the two portfolios. I am not long one instrument in my corporation and short the same instrument in fund. I take higher risk regarding stocks.

Is it advisable for investors to restructure their portfolios every once in a while?
I used to manage an equity fund. When investors poured money into the fund we did not buy stocks. When they withdrew their shares we did not sell stocks from the fund. Investors are not good at timing most of the time. When markets are up they jump in, when markets are down they go away. We try to convince them to hold on to their investments long term. Every fund manager has good and bad years. That is why we established the Cocncorde Hold fund because it invests in a number of absolute return funds.

Profile Viktor Zsiday was born in 1975. Started learning the stock market in 1996. Started working at a securities firm in 1998. In 2000 he began to work at Aegon as a equity portfolio manager. In 2003 he established the first absolute return fund in Hungary and two funds that may invest in derivatives in 2006. In 2009 he started working with Concorde Asset Management and established Citadella fund. His corporation Plotinus Corporation was listed in the stock exchange on February 15th, 2011.

Does Concorde Asset Management Ltd effect what the Citadella fund invests in?
I make the investment decisions. Concorde Asset Management provides the infrastructure, the responsibility and their brand. If I did something really crazy they would probably step on the breaks. Not that I every did anything crazy anyways. At times it may occur that some of the other Concorde funds are short an instrument and I am long the exact same instrument. Both strategies may make a profit or loss. It all depends on the timing. It is very important that the portfolio managers are aware of what they are doing and take responsibility.

What was your best and worst investments in your life?
Obviously the worst was when I went broke in 1998 in the Russian financial crisis. I was out of cash and owed money to the securities firm where I worked as an analyst so they basically they subtracted that money from my salary. It was a good experience in a sense that I had no used any kind of risk management prior to that. I learned that leveraged positions without a stop loss order can kill you.
My best investments? In 2003 I thought the Hungarian equity market was going to go up. (At that point the BUX Index was at 7-8000 points.) The world was coming out of recession, company profits were increasing. I was long from 8000 points until 20000 points.

According to Wikipedia there was a Noble family Zsiday in the Hungarian Lowland (Alföld). Are you the first financier in the family?
Well, my mother is an economist. She worked as a trainee in the Hungarian Ironworks then worked at Tisza Shoe factory as a CFO. The relatives that I know of were gentries who played cards and did not do well economically.