Commentaries

11 April 2019

Thomas de Saint-Seine

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

The RAM (Lux) Systematic Funds - Long/Short European Equities Fund returned 0.19%* (I EUR class – net of fees) in March. European equities recorded their strongest quarter in over four years in March, as a perceived decline in geopolitical risk, in particular around U.S.-China trade relations, helped provide a better backdrop for risk assets. The key underlying theme was the stark underperformance of Value vs Growth stocks, with the latter continuing to trade at stretched levels particularly across both the IT and Communication Services sectors. While our long engines contributed positive alpha, our shorts detracted during the mid-month risk-on rally, with these buoyant rallies ill-suited to fundamentally driven stock pickers, as low-quality stocks continued their upwards trajectory. While European markets enjoy this risk-on environment, it served to highlight the fact that investors may be a little complacent about the hidden risks in the market. One example of this complacency were March’s Europe manufacturing PMIs, which fell to just 45 (50 indicates stability), with forward-looking indicators suggesting that growth could be even weaker in the second quarter. From an engine perspective, naturally our Value biases cost us, with both our Value and Machine Learning styles out of flavour. Conversely, our long Low-Risk/Defensive and Momentum engines outperformed, providing some alpha. On the short side, our Value models performed admirably, undercutting the wide market, and lessening the pain generated by our Short Quality and Momentum’s outperformance. From a country perspective, we saw our long picks across Finland and Italy all generate positive alpha. Within Germany and Denmark, both sides of the book generated alpha. Conversely, we felt losses emanating from France, with a negative stock selection impinging upon returns here. On a sector basis, prodigious stock picking from our long book across Health Care, Consumer Staples and Utilities names were the primary drivers of returns. Our final observation of our Fund is that it has generally generated positive performance when the underlying market has correcting; this gives us a strong conviction that performance should return on our beta-neutral approach as soon as the market becomes a little less complacent.

*Sources : RAM Active Investments