Commentaries
13 April 2021
March 2021 - Valuation matters (again) - Systematic Fund Manager's Comments
The extraordinary increase of interest rates from historical lows since last summer seems to have eventually led to a repricing from the current historically high dispersion of valuations across Equity markets.
The Value Rotation
The outperformance of Growth over Value that has lasted for the last twelve years seems to have reached its top, above the precedent one set in January 2000. The recent outperformance of Value versus Growth stocks has started at the end of last summer, around the time we saw US interest rates bottom. The rotation towards Value has gained some strength in March, with attractive Value picks performing strongly over the month at the same time as some of the most “bubbly” industries and companies in the market corrected.
Source: RAM AI, MSCI, Bloomberg.
EM Growth Tantrum
US Interest Rate increases tend to be strongly unfavourable to Emerging Markets (The infamous Taper Tantrum of 2013 remains in most memories), but the recent interest increase coupled with anticipation of a strong pickup of World GDP growth (the IMF predicting a global Growth pickup of 6% in 2021) has so far left Emerging Markets unscarred. We saw however similarly strong rotations in EM in favour of Value, from the most highly valued Growth stocks, which strongly benefited our Emerging Markets Equities fund.
Source: RAM AI, MSCI, Bloomberg.
Fundamental Shorts Alpha Comeback
After a very complex beginning of the year for fundamental Short-Selling which felt like a fundamental Short-Selling Capitulation by the market (see The Big Short Tantrum, Jan. 2021), Shorts are finally starting to generate alpha in our Market-Neutral strategies again. The most expensive names in our Short model portfolios have started to correct from often bubble-high levels of valuations.
Source: RAM AI.
The same pattern of strong Long Value out-performance and Short alpha comeback has been seen across our Global Developed and Emerging Markets strategies, contributing to a large recovery of our Market-Neutral engines from the tail-events hits of last year.
We still observe large dispersion of valuations in the market after the excesses of previous years and consider likely that the spread of valuations between Long and Short books are likely to converge further.
European Market-Neutral Strategy
Source: RAM AI, Factset Fundamentals.
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.