Commentaries

9 April 2020

Thomas de Saint-Seine

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

The RAM (Lux) Systematic Funds – European Equities Fund fell -19.46%* (Ip-EUR class – net of fees) while the MSCI Europe TRN fell by 14.35%. Europe became the epicenter of the Coronavirus pandemic with the largest numbers of confirmed cases in Italy, France and Spain. As the death toll continued to rise so too did the need for significant affirmative action by governments and central banks. The impact on Europe’s economy has been seismic, with the business activity falling to record lows and steep declines across manufacturing and services (Europe’s PMI showed its lowest ever level 31.4). The ECB announced it would buy an extra €750bn of bonds, while Germany raised €150bn in extra debt and a further €600bn bailout fund, and the UK took similar steps with over £200bn of monetary stimulus available. The speed and velocity of March’s sell-off left fundamentally-driven (and especially systematic managers) exposed in what was a purely liquidity driven market. The sharp spikes in volatility coupled with worst first quarter for European equity markets since the 1987 crash, left little place to hide. The Equity sell-off was indiscriminate and its violence was reminiscent of late 2008, impacting the deleveraging of small caps disproportionately as active fund managers’ unwinds and outflows outpaced passive ones. After two years of small caps and Value underperformance capitulation feels close on these segments, akin to the end of 2008, and we currently find increasingly compelling valuation levels here. Our small- and mid-cap selections significantly underperformed our large cap selection, increasing the attractive valuation gaps of many of these names to the rest of the market. As we believe we are through with this broad liquidity unwind we anticipate a strong recovery of the SMID cap segment that make up c.48% of our book, and our models continue to build positions here. Within the Value engine Consumer Discretionary picks detracted the most, with homebuilders within the UK especially costing us. Our Momentum engine, which held its ground initially, also proved a negative contributor. Here, Consumer Staples and Consumer Discretionary picks across Switzerland and Sweden weighed. Given our Machine Learning’s inherent value biases we also suffered losses here, with Switzerland’s Health Care names and Italian Financials extending losses. The positive contribution was confined to our Low Vol / Defensive strategy, which outpaced the falling market as picks in Spain, the UK and Belgium all contributed positively. 

*Sources : RAM Active Investments