Commentaries

6 December 2019

Emmanuel Hauptmann

RAM Active Investments RAM (Lux) Systematic Funds - Long/Short European Equities Maxime Botti Partner & Senior Systematic Equity Fund Manager

The RAM (Lux) Systematic Funds - Long/Short European Equities Fund returned +0.38%* (I EUR class – net of fees) in November. European exchanges traded at 2015 highs in November as hopes were bolstered that the U.S. and China were close to signing an initial deal that would end a two-year-old trade war. The market’s complacency is illustrated by the level of the VIX Index (a measure of equity volatility) subsiding at a seven-month low. Meanwhile, Germany’s manufacturing sector continued to contract, albeit at a slower pace, for a second consecutive month, with a PMI reading of 44.1 (a five-month high). Elsewhere, Britain’s economy grew by 0.3% in the last quarter, after shrinking in Q2, but annual growth slowed to just 1%. These (largely) negative economic updates where overlooked in favour of the positive trade talks. On the long side, and despite the relative tranquility in European markets, our shorter-term strategies performed the best, while Machine Learning and Momentum were positive, as was Value, while naturally Low Risk/Defensive was the month’s relative laggard. As markets rallied, investors rotated out of Cyclicals and into Defensives at the beginning of the period, factor volatility silently increased, as was evidenced by wide dispersion in valuations and positions accordingly. The relative performance of cyclicals vs defensives also touched extreme levels, owing to the market’s short covering of the former, making it a difficult backdrop for quant managers more generally. Our low-quality shorts (cash flow destroying) continue to detract, with “cheap” Consumer Discretionary names rallying during the market’s risk-on mode, at the expense of their quality peers. On the short side, we saw strong alpha generation by our Momentum engine, while Value and ML outperformed the wider market (thus detracted), overall Quality was the Fund’s chief detractor.

*Sources : RAM Active Investments