Commentaries

May 2021 - Value cheapness and Valuation dispersion - Systematic Fund Manager's Comments

10 June 2021

Emmanuel Hauptmann

 

After years of excessive valuation in the most trendy Growth segments of the market (Renewable Energies, Data Software, EVs, Delivery companies,…), the recent increase in government bond yields has led to a healthy repricing in the market, dispersion in returns helping finally reduce the high valuation dispersion within sectors across the whole market.

Earlier this year, we were sharing the 2 below charts illustrating that the strong recovery of undervalued companies in the market could last for a long time (it lasted for more than half a dozen years in the 2000s, making strategies able to capture the still-high valuation dispersion compelling in the current market environment.

US 10Yr Yield vs MSCI World Growth

Source: RAM AI as of 31.03.2021

Source: RAM AI as of 31.03.2021

 

ESG Bias & Renewable energy bubble

Bubbles are namely found within a number of industries favored by growing flows into ESG products. While we welcome the ESG trend given our strong commitment to low-carbon and ESG integration across our fund range, we recognize ESG portfolios should be cautiously constructed to generate sustainable alpha. ESG investments are not immune to speculation, particularly as we tend to see Growth and large cap biases in most highly ESG-rated fund managers. Not to mention the trend within some renewable energy sectors that drives some stock prices to levels having no regards whatsoever for fundamentals. RAM AI has a strong commitment to decarbonize its portfolio toward net zero to be aligned with the Paris Agreement, we are convinced that this is the way to go forward and that more investment is needed in renewable energy, but with discernment. For example, the current Fuel-Cell/Hydrogen stock trend is in many aspects shocking given the lack of diligence that a lot of investors have, in investigating the R&D efforts of companies and the effectiveness of the technology presumably developed there. Despite the promising potential of the technology over the long term, not surprisingly we saw the share price of most of the Hydrogen/Fuel Cell stocks plummet in the last months.

 

How to get value with ESG?

In this environment our RAM (Lux) European Equities Fund and RAM (Lux) Emerging Markets Equities Fund represent a strong solution to consider for an allocator aiming to diversify away from large cap, growth portfolios while maintaining a best-in class ESG profile.
The challenge of investing with a Value bias in All Caps and sustainably is not small. As illustrated in the chart here-in, a typical value portfolio underperforms in term of ESG ratings vs an equally weighted portfolio. Both value and smaller caps tend to have lower rating than other segments of the market.


Source: RAM AI as of 30.04.2021, MSCI ESG. Please refer to the disclaimer at the end of the article

 ESG Ratings Distribution Market Cap

Source: RAM AI as of 30.04.2021, MSCI ESG. Please refer to the disclaimer at the end of the article

We have capitalized on our research in order to combine alpha and sustainability, while not impacting any of the value, quality, low risk biases of our portfolios.

 

Sustainability integrated with Technology

Leveraging off our deep learning platform, and by marrying structured and unstructured data, we look to optimally identify the sustainable alpha opportunities in our dynamic universe. We consider when scaling positions ESG as one of the four dimensions of the investment objective, next to alpha, risk and liquidity. Our research indicates ESG brings into the investment process a sustainable angle to the selection that makes it more socially responsible but also can help reduce long-term investment risk, as well as turnover and help enhance returns in the fund.

RAM Emerging Markets Equities Fund (IP-USD net of fee) vs MSCI EM TRN$ index

EM Fund Performance Stats

Source: RAM AI as of May 2021, MSCI ESG
Please refer to the disclaimer at the end of the article
Past Performance is not a reliable indicator of future results

 


RAM European Equities Fund (IP-EUR, net of fee) vs MSCI Europe TRN€ index 

Europe Fund Performance Stats

Source: RAM AI as of May 2021, MSCI ESG
Please refer to the disclaimer at the end of the article
Past Performance is not a reliable indicator of future results


RAM Fund range under EU Rules - SFDR

Currently, more than 88% of AUM managed by RAM AI are labelled under the SFDR Article 8 or 9. Positioning RAM AI among key players focusing in offering sustainable investment strategies.

Article 9:
RAM (LUX) SYSTEMATIC FUNDS - STABLE CLIMATE GLOBAL EQUITIES

Article 8:
RAM (LUX) SYSTEMATIC FUNDS - EUROPEAN EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - EMERGING MARKETS EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - LONG/SHORT EUROPEAN EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - LONG/SHORT GLOBAL EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - US SUSTAINABLE EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - GLOBAL SUSTAINABLE INCOME EQUITIES
RAM (LUX) SYSTEMATIC FUNDS - GLOBAL EQUITIES SUSTAINABLE ALPHA
RAM (LUX) TACTICAL FUNDS - SUSTAINABLE FLEXIBLE FUND
RAM (LUX) TACTICAL FUNDS - GLOBAL BOND TOTAL RETURN FUND

 

 

Direct access per fund to our latest Fund Manager's Comments: 

European Equities

Emerging Markets Equities

US Sustainable Equities

Stable Climate Global Equities

Global Sustainable Income Equities

Long /Short European Equities Fund

Global Equities Sustainable Alpha

Long/Short Global Equities 

Diversified Alpha

 

 

Disclaimer

Note: MSCI Rating is calculated as a direct mapping of scores to letter rating categories (e.g. AAA = 8.6-10). The ratings range from leader (AAA, AA), average (A, BBB, BB) to laggard (B, CCC). The scores range from 0 to 10 and measure the overall performance of companies in term of Environment, Social and Governance.

https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-fund-ratings


ESG integration is the process of incorporating material environmental, social and governance (ESG) factors alongside traditional measures into the investment decision process. Please refer to the legal documents to understand the integration of each Fund. ESG integration does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is considered as part of the overall investment process.