14 December 2021
by Emmanuel Hauptmann

November 2021 Market Review - Equity

The emergence of a new Covid variant, Omicron, has led to concerns that the growing wave of Covid cases globally may be accelerated. The multiple spike protein mutations of Omicron suggest it might benefit from immune escape, although given limited data, there are still questions on how it may impact the effectiveness of the available vaccines and on the relative severity of illness it causes. Uncertainty has caused many countries to proceed with an increased caution, toughening their COVID-related restrictions, resulting in a sell-off in Equities and a resurgence of the “Stay-at-Home” trade across markets.

Our strategies have behaved well against this backdrop. Both our European and Global market-neutral strategies were positive on Friday 26th, up 0.44% and 0.09% respectively, while MSCI Europe corrected by 3.7%. Our long, low-risk strategies, which had lagged since the beginning of the year in the risk-on move by the market, have significantly out-performed in the last few days of the month, with picks in the Health-Care and Utilities sectors performing positively. Our long, Machine-Learning driven portfolios also continued to perform strongly, maintaining their out-performance over the last few months. Momentum picks were in-line with the market, while our Value-driven stock selection was the only one to under-perform on the downside. Our short selections also contributed positively, as some of the most speculative and overvalued names in the market saw large falls, with some of the best picks being in the Airlines and Biotech industries.

We believe that the performance of our strategies over the last few days illustrates the de-correlation they offer to portfolios at a time when risky assets correlate to the downside. The high inflation currently experienced by developed countries (as illustrated by the current 6% yoy inflation in Germany, the highest in 30 years) would be expected to have an impact on the ability of the central banks to react early/strongly in the case of more downside for risky assets, which could accentuate the volatility in Equity markets. With valuation dispersion remaining at historically high levels, we expect this to remain a positive environment for fundamental-driven market-neutral approaches after a few difficult years for the asset class (Value Crash 2018-2019, Covid 2020) (cf. chart below).


Source: RAM AI as of 30.11.2021, past performance is not a guide to future performance

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