Commentaries
13 August 2020
July 2020 - Strong Stock Picking Environment - Systematic Fund Manager's Comments
Strong Stock Picking Environment – Both Longs and Shorts Alpha Generative
The US and European Q2 GDP numbers revealed the sharpest decline in the post-war era. Furthermore, the increase in the number of global Covid-19 infection cases and renewed US-China tensions did not drag on investors’ sentiment as positive developments linked to a potential vaccine and European leaders’ agreement on the massive EUR 750 billion recovery plan supported the good tenure of risk assets globally. The only exception to the rule was the European equity market which ended the month in negative territory, mainly due to the strength of the against major currencies, making some European companies less competitive.
A detailed analysis of the European equity market shows that dispersion was high at several levels during the month of July. To illustrate this, the below tables show the out/under-performance of the market by industry, equity style factor and market cap. Dark colours indicate a strong deviation from the MSCI Europe TRN Index.
Industry, Style Factor and Market Cap Performance vs MSCI Europe TRN Index
Source: Bloomberg, MSCI Indices, RAM AI, as of 31.07.2020
In this environment, our stock picking engines worked perfectly and generated strong alpha both on Longs and Shorts in our Equity Market Neutral strategies. Thanks to a high return dispersion, our Long Momentum and Low Risk books, skewed respectively towards tech/e-commerce and non-cyclical sectors currently, contributed very positively. Our Long Value strategies also outperformed the broad market despite more book-based Value being hurt last month. On the short single names book front, the positive alpha was mainly generated through our Low-Quality, Machine Learning and Momentum strategy picks.
RAM Long/Short European Equities sub-strategies exhibited the following behaviour versus MSCI Europe TRN Index over the month, highlighting the strong alpha generated on both Longs and Shorts.
RAM Long/Short European Equities Sub-Strategies vs MSCI Europe TRN Index
Source: Factset, MSCI Indices, RAM AI, as of 31.07.2020
Note: sub-strategies returns are gross of fees
Our Global Market Neutral strategy has recovered 14% from its June lows and is now up close 1.8% YTD (Class PI USD, as of 31.07.2020), with strong performance of our Value-biased engines. As our global market neutral strategy was the first of our funds hurt by the broad systematic Value unwind that started in 2018 (two quarters ahead of our European market neutral fund) it bodes well for the recovery that just started in Europe.
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