Commentaries

2 July 2019

Emmanuel Hauptmann

RAM Active Investments RAM (Lux) Systematic Funds -Emerging Markets Equities

 

The RAM (Lux) Systematic Funds – Emerging Markets Equities Fund returned +6.15* (Ip USD Class – net of fees), performing in line with the MSCI Emerging Markets TRN$’s return of +6.24%. Trade concerns, political indecision and slowing growth all abated in June, as markets were increasingly focused on central banks’ rhetoric. The Fed reinforced investor expectations for an interest rate cut in 2019, while the ECB suggested additional eurozone stimulus could be necessary. China’s market rallied on news that Beijing and Washington officials would resume their negotiations, after talks faltered in May. Brazil rose strongly, as the increasing likelihood of lower domestic and overseas interest rates in the coming months bolstered investor sentiment. However, there appears a palpable disconnect between the central bank-led rally with investors unwilling to price in their downside risks, and leading indicators which continue to soften; a bad omen for the business cycle and corporate profits. Further downside risks to the global economy could translate into an outright earnings recession, a scenario which is not reflected in most investor portfolios. With risks (liquidity and market) quietly seeping into portfolios, as outperformance becomes concentrated amongst a small portion of the market, we believe that a fundamentally driven, all-cap approach can offer downside protection for the coming months. Performance was dampened by the growth vs value gap which widened over the month, negatively impacting our Machine Learning and Value strategies, while large-cap stocks—supported by gains in the more defensive sectors, outperformed mid & small-caps, again to our detriment. Momentum was the key driver of positive performance, especially over the latter stage of the month. China, South Korea and Australia all enjoyed a meteoric month, benefitting from the dovish central banks. Emblematic of these risk-on non-fundamentally driven rallies, our Fund returned a little performance. Strong positive stock selection within Taiwan and South African names provided alpha, while our underweight to India was also a positive. Conversely, Consumer Discretionary and IT names across South Korea and China detracted. Finally, we saw strong stock selection effect from our Financials picks, coupled with our prudent allocation here.

*Sources : RAM Active Investments