Commentaries

9 April 2020

Thomas de Saint-Seine

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

The RAM (Lux) Systematic Funds - Long/Short Emerging Market Equities Fund returned -3.74%* (I USD class – net of fees) in March, as the MSCI EM TRN Index was down 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 SMID 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. Our long engines detracted over the month, with Value and Machine Learning styles weighing heavily, but on the positive side we saw our Defensive / Low Vol engine contribute positively. Substantial alpha was generated within our short, as the wider market fell by 15%, our short Momentum and Quality engines combined across Australia (Energy) and South Africa (Materials) to contribute positively and undercut the market. Industrials, IT and Consumer Discretionary shorts all contributed positively. The alpha generated by our shorts was not enough to offset losses in our long book, as an unhelpful short-selling ban coupled with Central Bank’s intervention led to short covering in the market, and thus limiting the downside potential of some of our short plays. However, going forward, the dispersion this violent sell-off has created coupled with our attractive fundamental positioning, should enable us to begin to deliver positive alpha in the coming weeks and months.

*Sources : RAM Active Investments