Systematic Equities Monthly Comments - August 2023

RAM Emerging Markets Equities

The rise in global interest rates and mounting evidence of a global manufacturing downturn resulted in a downward adjustment of global Equities in August. A significant concern for Emerging Markets is the pronounced deceleration of the Chinese economy, which carries the weight of debts accrued from several decades of investment-driven GDP growth. Last month, the spotlight was on Country Garden, as the real estate developer failed to make some bond coupon payments. Meanwhile, the ongoing saga of Evergrande's $340 billion USD liability restructuring continues, with delays aiming to prevent a widespread default crisis in the world's second-largest economy. After July’s rebound, Chinese Equities underperformed significantly over the month, leading to a positive contribution of both the underweight allocation and the selection effects in China, with IT and Communication Services picks standing out.
Taiwan was the second best contributor to the fund, with very strong performance from local electronics manufacturing companies selected by the strategies. 
The fund’s net underweight to India detracted, while some of the strategy’s banking picks in the portfolio significantly underperformed the market, making India the worst contributor over the month.
Our selection of stocks in Singapore and Indonesia was increased in August, at the expense of our South-African picks. China remains the largest net underweight position in the fund, with net underweights in Consumer Discretionary, Communication Services and Financials.
 

RAM European Equities

European Equities declined in the first half of the month, and then partially recovered. The fund (Class-IP EUR net of fee*) ended the month down 2.01%, its benchmark was down 2.45%. Our Momentum book struggled to recover in the second half of the month, whereas our Defensive and ESG books performed the best, resisting well in the downside. This mirrors the universe’s behaviour over the month, the Low Volatility sub-index overperforming the benchmark over the same period.
The fund underperformed in Industrials, its biggest allocation. It also underperformed in Financials. Its overweight in the former also penalised the relative performance. The fund overperformed in Consumer Staples and Consumer Discretionary, the second and third biggest allocated sectors. Our slight overweight in Consumer Discretionary limited the positive contribution, given that the sector was the worst performer of the European universe over the period.
The fund currently strengthens its allocation in Financials, reallocating from Health Care and Information Technology.
The fund overperformed in the UK and France, and underperformed in Germany, our three biggest allocations. It remains strongly underweight UK and France, limiting the downside impact of these two countries, and slightly overweight with Germany. The fund greatly overperformed in the Netherlands, our next largest allocation, our selection being very resilient.
Our fund remains strongly allocated in Germany, the UK and France, and strengthens its allocation in the Netherlands.
The fund remains greatly underweight in the Large Cap segment, and overweight in the Small and Mid Cap segments. It greatly overperformed in the Mid and Large Cap segments.
 

RAM Long/Short European Equities

Higher global interest rates, fragility of brick-and-mortar retailers in the US and more evidence of a global manufacturing slowdown led to a correction of global Equities in August.
After two months of short squeeze and extended market speculation, low quality companies corrected sharply in August as investors assess the global recession risk again.
The fund (Class-I EUR net of fee*) had a positive return over the month, up 1.3% while the market (MSCI EU TRN) was giving up 2.4% of its YTD upside. 
The short portfolio was the best contributor with a good performance of the short IT, Consumer Discretionary and Materials picks of the fund, all significantly underperforming their sector over the month. 
The banks selection detracted with a net short position in UBS costing the most after the bank announced record earnings post Credit Suisse acquisition.
Net selection exposure to Tech and Financials was reduced, while Industrials and Communication Services picks saw their weight increased over the month.
 

RAM Long/Short Global Equities   

RAM (Lux) Long/Short Global Equities Fund (Class-PI USD net of fee*) posted a return of -0.51% in August, while the MSCI World index's declined by 2.39%.
On the back of rising US long-term rates, Utilities and Consumer Staples globally underperformed. This benefitted the Fund, which maintains net short positions in these sectors.
The Fund's net short position in Energy stocks had a detrimental effect.
Short picks in the Communication Services sector negatively impacted performance, as several stocks rebounded in August, despite the broader market downturn.
Our alpha engine had a mixed performance in a thinly traded market. Small caps continued to underperform, displaying significant undervaluation relative to Large Caps.
The Fund continues to hold net long positions in Information Technology and Healthcare, and net short positions in Utilities, Materials and Energy.
 

RAM US Sustainable Equities

RAM (Lux) US Sustainable Equities Fund (Class-IP USD net of fee*) posted a return of -2.73% in August, compared to the MSCI US index's decline of 1.85%.
While most sectors dipped, the Energy sector was the sole performer, causing a negative allocation effect due to the Fund's significant underweight in that sector.
Healthcare stocks held up well in the downside, contributing positively to the Fund's performance, given its significant overweight in this sector.
The primary drag on performance was Utilities, experiencing a negative allocation effect as the sector weakened amid rising long-term interest rates.
Market cap diversification was another hit to the Fund, as Small Caps lagged, marking historic undervaluation compared to Large Caps.
The Fund's main over- and under- allocations are in Utilities and Healthcare (overweight) and Consumer Discretionary (underweight), respectively.
 

RAM Stable Climate Global Equities

The RAM (Lux) Stable Climate Global Equities Fund (Class-PI USD net of fee*) witnessed a decline of 2.87% over the month.
The dip in global equities in August can be attributed to factors such as surging global interest rates, the vulnerability of traditional retailers in the US, and further indications of a global manufacturing downturn.
Amid this market landscape, the leading performers were factors like Low Volatility, Momentum and Quality. The Share Buyback and High Dividend Yield factors also influenced the market but were less dominant.
While many sectors saw a decline, the Energy sector stood out, surpassing the wider market by more than 4%. However, this did not affect the fund due to its focus on energy transition.
The fund's taxonomy aligned strategy, which predominantly leans towards Utilities (especially renewable energy stocks like Brookfield Renewable), resulted in a negative allocation effect. This was due to the sector's underperformance, lagging behind global equity by over 3%.
There has been an uptick in the fund's exposure to Consumer Discretionary stocks, making it the second-largest allocation after Healthcare.
The Carbon footprint of the portfolio mirrors the fund's sustainable goals. Notably, its realised Carbon footprint and Greenhouse Gas Intensity (covering Scope 1, 2, and 3) are considerably reduced, being over 50% below the global equity market average.
ESG leaders surpassed the primary index by 79bps, while low carbon stocks performed at par with the market.
 

RAM Global Sustainable Income Equities

The RAM (Lux) Global Sustainable Income Fund (Class-IP USD net of fee*) saw a decline of 2.75%. Its benchmark, the MSCI World High Dividend Yield Index TRN$, dropped by 2.31% during the same period. Meanwhile, the global equity market index recorded a decrease of 2.39%.
August witnessed a dip in global Equities, influenced by increased global interest rates, the vulnerability of physical retailers in the US, and further signs of a global manufacturing decline.
Amidst this backdrop, the top-performing factors were Low Volatility, Momentum and Quality. Although the Dividend Yield factor showed a modest positive performance, the top decile stocks outshone the bottom decile by 0.65%. Remarkably, the Share Buyback factor had superior results, with the top decile names outpacing the bottom decile by 1.8%. This boosted the fund's relative performance against its High Dividend Yield benchmark.
On a regional basis, the Selection effect in the US negatively impacted the fund the most, with Germany coming in next as a significant detractor. Conversely, Switzerland and Denmark emerged as the top positive contributors.
The Energy sector surpassed the overall market by over 4%, adversely affecting the fund due to its sustainability targets. The IT sector also hindered performance, primarily due to a 43bps negative selection effect. On a brighter note, the Healthcare sector provided positive contributions, especially from holdings like Novo Nordisk and Humana, Inc.
The fund's taxonomy aligned strategy, with a significant tilt towards Utilities (notably renewable energy stocks like Brookfield Renewable), resulted in a negative allocation effect. This was because the sector lagged by over 3% compared to global equity.
The fund remains predominantly invested in Financials and Consumer Discretionary stocks and is less exposed to Materials and Consumer Staples stocks.
The portfolio's carbon profile is in line with the fund's sustainability goals, showcasing a realised carbon footprint and Greenhouse Gas Intensity (Scope 1, 2, and 3) below its benchmark.
ESG leaders outdid the main index by 79bps, while low carbon stocks performed on par.
 

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