Systematic Equities Monthly Comments - May 2023

RAM Emerging Markets Equities

Emerging Markets were down in May, as the Fed raised target rates again, continuing the fastest hiking cycle ever. The last hike put further pressure on EM currencies and contributes to a widening of the valuation gap between EM and developed markets.

The fund was down 2% while MSCI EM TRN was down 1.7%, the fund’s Indian underweight costing as Indian Equities rallied and made back some early-year underperformance. Positive macroeconomic dynamic in India seem to lead to strong Equity flows into the country, but most stocks in the country remain unappealing given high valuation levels and low distribution of income to investors.

The fund’s consumer staples exposure surprisingly detracted on the market downside, as the market saw a rotation from Low-Risk to growth, very similarly to the rotation across developed markets, which is leaving the IT sector relatively overvalued versus other sectors (slight underweight in the fund currently).

The fund’s selection in China outperformed MSCI names in the country, and our underweight position contributed positively as signs of manufacturing contraction and economic slowdown keep raising question marks on the country’s post COVID-19 recovery.

The strategies added to China slightly over the month, with additions in the Healthcare and Tech sectors, at the expense of Financials.

The fund remains ahead of the market since the beginning of the year and should keep benefitting from the high valuation dispersion prevailing across Emerging Markets.

RAM European Equities

Global equity markets suffered in May after the Fed raised target rates again, continuing the fastest hiking cycle ever. 

It was a difficult month for value-biased approaches, as highly-valued growth stocks outperformed significantly, MSCI Europe Growth giving back 1% while MSCI Europe Value was down close to 4%.

The IT sector was significantly up over the month, as a lot of speculative buying occurred along with the growing AI thematic play by the market, leading some names to historically high levels of valuation.

The fund was down 4% as it was hurt by its value bias, giving back on European industrial value plays while no capturing the large upside in some semiconductor stocks given their stretched valuations.

The defensive selections of the fund in Consumer Staples detracted some performance as well, as we surprisingly saw rotation from these sectors into IT despite the market downside.

The recent move pushed valuation dispersion to higher levels last month, dispersion in earnings valuation in Europe being around the same levels as it was at the end of the 1990’s, below the COVID-19 highs but still offering very compelling relative-value opportunities across European market caps. 

The fund remains net long Industrials and Communication services while being underweight Healthcare.

RAM Long/Short European Equities

Global Equity markets suffered in May after the Fed raised target rates again, continuing the fastest hiking cycle ever. 

It was a difficult month for Value-biased approaches, as highly-valued Growth stocks outperformed the market significantly. 

The fund was down 1.7% over the month, the Value bias detracting on both sides of the book, while Momentum also suffered in the rotation towards Growth. 

Highly-valued Biotech and IT names in the short single name book were the largest detractors, while industrial Value picks made the long book lag.

The fund’s Mean-Reversion engine had a negative performance contribution last month as the rotation did not abate until beginning of June, but it is still positive since the beginning of the year and has the most attractive risk-adjusted return profile across strategies since deployment.

As valuation levels get more stretched again in Europe, we expect to rapidly see a reversion from the last three months’ move, which would favour again the Value biases on both sides of the book.

Net long IT and Energy exposures were reduced while the short Consumer Discretionary and Biotech exposures were also scaled down.

RAM Long/Short Global Equities    

RAM (Lux) Long/Short Global Equities Fund (Class-PI USD net of fee*) performance of -0.71%, while the MSCI World index returned -0.93%.

May's market showed no clear trend, with anticipation of Fed rate hikes pause and lingering recession fears, driven by factors such as an inverted U.S. Treasury yield curve, a weaker housing market, and diminished manufacturing activity.

U.S. Debt Ceiling crisis impacted markets amidst Congressional compromise to avert government default.

Growth factors and large cap tech stocks continued their dominance since the year's start.

The Short book suffered from strong performance of small & mid cap low quality names, particularly in the Consumer Discretionary sector (cruise lines, leisure companies).

The Long book was the main performance drag, with defensive quality names underperforming. The net long in Financials and Healthcare hurt the Fund, partially mitigated by the net long allocation to IT stocks.

The Fund remains net long IT, Healthcare and Communication Services, and net short Materials and Utilities. 

RAM US Sustainable Equities

RAM (Lux) US Sustainable Equities Fund (Class-IP USD net of fee*) performance of -0.47%, underperforming the 0.65% return of the MSCI US index, buoyed by expectations of a Fed rate hike pause.

Recession fears persisted throughout May, marked by elevated volatility, influenced by an inverted U.S. Treasury yield curve, a softer housing market, and reduced manufacturing activity.

U.S. Debt Ceiling crisis continued to impact markets as a Congressional compromise to avoid default approached.

In this context we have seen a continuation of the themes which have played out since the beginning of the year, with Growth factors and large cap tech names continuing to outperform.

The Fund's market cap diversification was a drag, as small and mid caps suffered the most from the rotation from Value to Growth.

Overweight exposure to Healthcare stocks was the main performance detractor, while defensive Quality names underperformed.

This was partially offset by good selection effects in IT, particularly Computer Hardware.

The Fund is overweight Healthcare, Utilities and Financials, and underweight Communication Services and Consumer Discretionary.

RAM Stable Climate Global Equities

The RAM (Lux) Stable Climate Global Equities Fund (Class-PI USD net of fee*) declined by 3.56% for the month.

The market in May exhibited no clear trend, due to anticipation of a pause in Federal Reserve rate hikes and persistent fears of a recession. These fears were fuelled by various factors such as an inverted U.S. Treasury yield curve, a weaker housing market, and decreased manufacturing activity.

A crisis regarding the U.S. Debt Ceiling affected markets, even as Congress reached a compromise to prevent a government default.

In this market environment, Growth and high volatility factors performed robustly. Highly shorted stocks were also favoured. Conversely, Value and Income factors turned out to be the worst performers.

Most of the MSCI World performance was driven by U.S. mega-cap tech stocks, which rose more than 10% over the month. This development negatively impacted the fund from both a selection and allocation perspective.

The Energy sector continued to underperform, benefitting the fund due to its sustainability targets.

The taxonomy-aligned sustainable strategy, with a heavy bias towards utilities, generated a negative allocation effect, but this was counterbalanced by a positive selection effect.

The fund's largest sector exposures remain in Healthcare and Financials.

The Carbon profile of the portfolio aligns with the fund's sustainable objective, displaying a realised carbon footprint and Greenhouse Gas Intensity (Scope 1, 2, and 3) that are over 50% below the Global Equity market.

ESG leaders marginally outperformed the main index, while low carbon stocks finished in line.

RAM Global Sustainable Income Equities

The RAM (Lux) Global Sustainable Income Fund (Class-IP USD net of fee*) declined by 3.88%, while its benchmark, the MSCI World High Dividend Yield Index TRN$, finished the month down by 4.46%. In contrast, the Global Equity market index declined by 1.00%.

The market in May exhibited no clear trend, due to anticipation of a pause in Federal Reserve rate hikes and persistent fears of a recession. These fears were fuelled by various factors such as an inverted U.S. Treasury yield curve, a weaker housing market, and decreased manufacturing activity.

A crisis regarding the U.S. Debt Ceiling affected markets, even as Congress reached a compromise to prevent a government default.

In this market environment, Growth and high volatility factors performed robustly. Highly shorted stocks were also favoured. The Dividend Yield factor ended up in the red, with top decile names underperforming bottom decile names by 4.9%. The Share Buyback factor fared slightly better, with top decile names underperforming bottom decile names by 2.9%. This positively influenced the fund's performance relative to the High Dividend Yield benchmark.

Most of the MSCI World performance was driven by U.S. mega-cap tech stocks, which rose more than 10% over the month. This development negatively impacted the fund from both a selection and allocation perspective.

The fund benefitted from a strong selection effect in the mid cap segments, which compensated for the weak allocation effect.

The taxonomy-aligned sustainable strategy, with a heavy bias towards Utilities, generated a negative allocation effect, but this was counterbalanced by a positive selection effect.

The Fund continues to be overweight in Financials and Consumer Discretionary stocks, and underweight in Materials and Consumer Staples stocks.

The Carbon profile of the portfolio aligns with the fund's sustainable objective, displaying a realised Carbon footprint and Greenhouse Gas Intensity (Scope 1, 2, and 3) that are below the Global Equity market.

ESG leaders marginally outperformed the main index, while low carbon stocks finished in line.