Commentaries

14 February 2020

Thomas de Saint-Seine

RAM Active Investments RAM (Lux) Systematic Funds -Emerging Markets Equities

The RAM (Lux) Systematic Funds – Emerging Markets Equities Fund finished the month down -5.13%* (Ip USD Class – net of fees), while the MSCI Emerging Markets TRN$ returned -4.66%. The rapid spread of a deadly virus from China remained at the forefront of investors’ minds and exposed the fragility of global markets in January. Concerns that the impact could develop into a global pandemic halted a seven-week rally in EM equities, but with China’s markets closed for New Year holidays, the contagion into wider Asia was perceptible (with Hong Kong and Taiwan taking the brunt of the panic selling).

For our all cap and fundamentally-drive strategies, this type of environment has been more challenging to generate alpha with sentiment rapidly switching from risk on, to off, with stocks’ fundamentals being shunned in the initial phase of this crisis. From an engine perspective, Defensive was the month’s clear relative outperformer; protecting portfolio losses, while Value was also largely positive. Conversely, our GARP/Momentum style weighed heavily, with the market contending with a stark change in sentiment following the virus outbreak and the factor broadly witnessing a global sell-off. Country-wise, stock selection within Russia (Utilities & Energy) and Brazil (Financials & Energy) led gains. Conversely, we witnessed losses coming from our APAC overweight, especially in South Korea and China where higher-beta names suffered the most with IT, Communication Services and Industrials selections all negative contributors over the month. On the sector front, Financials and Energy names were our Fund’s strongest relative contributors, while IT, Consumer Discretionary and Industrials picks weighed. Finally, we believe that we can expect fundamentals to come back once the visibility on the virus spread becomes clearer and see our quality bias helping to identify attractive companies with robust operations and financial health within the small and mid-cap segment. This non-selective environment tends to be followed by good rebound of our strategies as at the end of the day fundamentals prevail in the market! 

 

Source: RAM Active Investments and Bloomberg at the end of January 2020.