Commentaries

9 April 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 -16.89%* (Ip USD Class – net of fees), while the MSCI Emerging Markets TRN$ fell -15.40%. The coronavirus pandemic which took just three months to engulf China, hit Europe and North America in March. As it swept through it triggered an economic crisis whose violence and velocity exceeded almost everything we have previously witnessed. As the cases of Coronavirus increased so too did the speed of the market sell off, with perceived safe-havens all falling simultaneously. The forced selling evidenced in markets saw records broken with alacrity, as both developed and emerging markets shared the pain. Policymakers scrambled to contain the fallout from the virus, which saw historic actions, including over $2 trillion in fiscal support from the Fed. The market dynamics observed in March were indicative of a deleveraging and search for cash across investors’ portfolios, with some of the pre-existing imbalances (Value and Mid & Small Caps underperformance) further pushed to extreme levels. The equity sell-off was indiscriminate and its violence was reminiscent of late 2008, impacting 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 market segments, akin to 2008, and we find increasingly compelling valuation levels currently. Our SMID cap picks significantly under-performed our large cap selection, increasing the attractive valuation gap 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 SMID caps that make up c.58% of our book, and our models continue to build positions here. On a sector basis we saw our relative underweights to Financials and to Healthcare have the largest positive allocation effect, while the underweight to Communication Services and overweight Industrials negatively impacted performance. On the selection front, picks across Consumer Discretionary, Utilities and Communication Services detracted the most. From a country perspective, our underweight to China had the biggest negative impact, as despite manufacturing activity falling to record lows, China’s equity market showed remarkable resilience. Our Australian exposure was also negative, while in Singapore the selection effect cost. Conversely, our slight overweight to and stock selection in South Korea proved rewarding, as well as stock selection in India.

Source: RAM Active Investments