Commentaries
12 March 2021
February 2021 - US fiscal boost speeds up interest rates adjustment - Systematic Fund Manager's Comments
A clear fixed income market message
The acceleration in coming years growth and inflation expectations sent long-term interest rates close to levels last seen before March 2020. From an absolute perspective, these moves suggest the global economy is on course to rapidly close the output gap created by the pandemic. Market participants appear to believe DM central banks on the maintenance of short-term rates for a prolonged period since the rise in shorter-term rates has been contained so far. Nevertheless, the speed at which the steepening is happening brings question marks as to the digestion by the market of higher borrowing cost given the additional huge debt burden brought with Covid-19. In that respect, the below chart illustrates the severe shift in US and German Treasury yield curves in February 2021. It is interesting to note that the steepening in place since the summer of last year, less pronounced in Europe than in the US, has become broad-based.
US & Germany Treasury Yield Curve Shift
28.02.2021
Source: Bloomberg, RAM AI, as of 28.02.2021
Liquid financial assets – any juice left ?
The market rally in place over the past 11 months has been impressive by any measure. Once the market absorbs all the positive news related to the unprecedented fiscal and monetary support, we expect a return to fundamentals and the recent move in interest rates is bringing it in our view. For instance, companies with no ability to generate positive earnings and which had an easy access to liquidity may well face difficulties in a world with higher financing costs. The market continues to present attractive opportunities, but it has become very fragmented and extreme for certain segments. Consequently, market gyrations in global liquid financial assets will be part of the investment landscape in the coming months. In that respect, our observations are as follows:
- High dispersion in equity and fixed income markets
- Shorter-term strategies will play a key role
- Importance of fundamental strategies
- Long/Short strategies to benefit from the current high dispersion and inefficiencies
- Diversification and liquidity remain of utmost importance
At RAM AI, several of our strategies are well-equipped to benefit from the adjustment/recovery the world economy is going through:
- RAM Macro Systematic strategy
Nowadays the pace at which a market is shifting between Bull and Bear regimes is almost 5 times faster than 25 years ago. Our Macro Systematic strategy exploits dispersion in global liquid financial assets, it uses a large number of short, medium and long-term strategies and aims to capture the interdependence across and within asset classes. The strategy’s objective is to provide decorrelation in a portfolio context and provide investors positive returns when it is the most needed. Q4 2018 and March 2021 are among the most recent examples, during which our Macro Systematic strategy was able to deliver strong positive returns. Since the beginning of the year, the fund has been shifting its exposure from long government bonds to short as a result of the strength of shorter-term signals.
- RAM Fixed Income strategies
Flexible, liquid and diversified fixed income strategies will benefit from the implications of interest rates volatility. Our Global Bond solution, which combines a traditional investment approach with non-traditional strategies has proven its ability to mitigate downside in fixed income markets while capturing the upside. The recent volatility in rates and the impact on the market offer interesting opportunities for our strategy. Additionally, our Asia Bond strategy, focusing on an asset class which is less sensitive to interest rates adjustment than other EM regions, represents a compelling solution for investors seeking for higher yield in a region with strong macroeconomic fundamentals.
- RAM Equity strategies
Our Quality-biased and All-cap equity selection process has been delivering strong alpha when the market turned the focus to fundamentals. Given the high dispersion in place, both our Long-Only and Long/Short strategies are set to capture the inefficiencies. On top of the that, the Value and Mid & Small Cap buckets within our diversified strategies could turn to be main beneficiaries in a continued economic reflation environment. Finally, our emphasize on ESG data integration makes our equity offering as one of the few All-Cap solutions with strong sustainability rating.
Direct access per fund to our latest Fund Manager's Comments:
Legal Disclaimer
This document has been drawn up for information purposes only. It is neither an offer nor an invitation to buy or sell the investment products mentioned herein and may not be interpreted as an investment advisory service. It is not intended to be distributed, published or used in a jurisdiction where such distribution, publication or use is prohibited, and is not intended for any person or entity to whom or to which it would be illegal to address such a document. In particular, the products mentioned herein are not offered for sale in the United States or its territories and possessions, nor to any US person (citizens or residents of the United States of America). The opinions expressed herein do not take into account each customer’s individual situation, objectives or needs. Customers should form their own opinion about any security or financial instrument mentioned in this document. Prior to any transaction, customers should check whether it is suited to their personal situation and analyse the specific risks incurred, especially financial, legal and tax risks, and consult professional advisers if necessary. The information and analyses contained in this document are based on sources deemed to be reliable. However, RAM AI Group cannot guarantee that said information and analyses are up-to-date, accurate or exhaustive, and accepts no liability for any loss or damage that may result from their use. All information and assessments are subject to change without notice. Investors are advised to base their decision whether or not to invest in fund units on the most recent reports and prospectuses. These contain further information on the products concerned. The value of units and income thereon may rise or fall and is in no way guaranteed. The price of the financial products mentioned in this document may fluctuate and drop both suddenly and sharply, and it is even possible that all money invested may be lost. If requested, RAM AI Group will provide customers with more detailed information on the risks attached to specific investments. Exchange rate variations may also cause the value of an investment to rise or fall. Whether real or simulated, past performance is not necessarily a reliable guide to future performance. The prospectus, key investor information document, articles of association and financial reports are available free of charge from the SICAVs’ and management company’s head offices, its representative and distributor in Switzerland, RAM Active Investments S.A., Geneva, and the funds’ representative in the country in which the funds are registered. This marketing document has not been approved by any financial Authority, it is confidential and its total or partial reproduction and distribution are prohibited. Issued in Switzerland by RAM Active Investments S.A. which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA). Issued in the European Union and the EEA by the authorised and regulated Management Company, Mediobanca Management Company SA, 2 Boulevard de la Foire 1528 Luxembourg, Grand Duchy of Luxembourg. The source of the above-mentioned information (except if stated otherwise) is RAM Active Investments SA and the date of reference is the date of this document, end of the previous month.