Systematic Equities Monthly Comments - August 2024

RAM Emerging Markets Equities

The RAM (Lux) Systematic Funds - Emerging Markets fund’s (hereinafter ‘the Fund’) (Class-IP USD net of fee*) outperformed its benchmark in August, returning 1.81% versus 1.61% for the MSCI Emerging Markets Index.

August 2024 saw a sharp market correction driven by the unwinding of JPY carry trades (i.e., a rapid reduction in short yen positions following a hawkish BoJ decision) and a subsequent spike in VIX as dealers covered short Vega positions. Emerging markets recovered and stabilised as the month progressed.

In this environment, the fund’s Momentum strategies lagged behind other parts of the portfolio, particularly during the VIX spike. Indeed, other strategies, particularly Value and Low Volatility, demonstrated resilience during this sharp market movement, underscoring the importance of diversification. The machine learning-driven strategy emerged as the top performer by the end of the month.

Brazil contributed the most to country performance, followed by Australia, both benefitting from strong stock selection. The fund's underweight in India added value, supported by favourable FX moves and solid stock picks. However, the overweight in Turkey detracted from returns due to both allocation and stock selection impacts.

Sector-wise, Materials contributed positively through both allocation and selection, while Consumer Staples weighed on performance due to adverse stock picks.

Despite a broader market tilt toward large caps, strong stock selection in small- and mid-caps drove positive results for the strategy.

The fund is reducing its underweight in China and trimming exposure to Taiwan, leading to a modest underweight following a reduction in semiconductor industry allocations. Meanwhile, the models are increasing exposure to defensive sectors, such as Healthcare and Consumer Staples.

*Note: IP USD share class currently registered in LU, AT, CH, DE, DK, ES, FI, FR, UK, IT, NL, NO, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

** The portfolio is actively managed on a discretionary basis with reference to a benchmark. While the product compares its performance against the Index, it does not try to replicate this benchmark and freely selects the securities that it invests in. The deviation with this benchmark can be significant.

RAM European Equities

European equities experienced a spike in volatility in early August, mirroring trends in the US but to a lesser extent than the NASDAQ. However, the following weeks brought a strong performance across Europe, with large-cap stocks leading the way. Inflation in Germany, France, and the UK continued to decelerate, approaching the 2% target, which led to a surge in the Euro against the dollar and fuelled market expectations of a potential rate cut by the ECB. In this environment, the RAM (Lux) Systematic Funds – European Equities fund’s (Class-IP EUR net of fee*) posted a 0.99% gain for the month, compared to 1.62% for the MSCI Europe.

The spreads in valuation tightened over the month, reaching levels not seen since early 2022 for the entire European universe, and mid-2021 for the SMID segment. Despite this normalisation, momentum rotation and large cap overperformance had a more significant impact. However, the fund remains well positioned, as the PE Spreads are still far from their average levels seen in the mid-2010s.

All our books ended the month up. Our momentum book suffered the most from the Equity drawdown in early August, but surged in the next weeks, positively contributing to the fund’s performance over the month. Our Defensive, Value and Machine Learning books resisted well in the downside, and overperformed the index in August.

Our UK selection lagged, impacted by our Industrial, Financial and Communication picks. Overall, our fund ended the month down in the country, while it strongly performed in the benchmark and is its largest allocation. Our German and Swiss selections overperformed, but our French picks lagged. In the Nordics, our selection underperformed, but our overweight positions in Sweden, Denmark, and Finland helped offset some of this underperformance. The fund reduced its allocation in the UK and France and increased its exposure to the Nordics and Switzerland.

Sector-wise, the fund’s selection lagged in Industrials, its largest allocated sector, as well as in Communication Services and Consumer Staples, with most of this underperformance occurring in the UK, as noted earlier. However, our Financials and Healthcare selections outperformed. Over the month, the fund increased its allocation to Industrials and slightly reduced its exposure to defensive sectors like Consumer Staples and Healthcare.

The fund ended the month up in the large cap segment and down in both the Small and Mid-cap segments. Our overweight in SMID stocks detracted the fund’s relative performance, and our large selection strongly overperformed. However, our underweight in the latter partially offset the positive relative contribution over the month.

 *Note: IP EUR share class currently registered in LU, AT, CH, DE, DK, ES, FI, FR, IT, NL, UK, NO, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

**The portfolio is actively managed on a discretionary basis using a benchmark. Although the product compares its performance to that of the MSCI Daily Net TR Europe Euro, it does not seek to replicate this benchmark and is free to choose the securities in which it invests. The difference with this benchmark may be significant.

RAM European Market Neutral Equity

RAM (Lux) Systematic Funds –European Market Neutral Equity fund’s (Class-I EUR net of fee*)  was up 1.28% in August, continuing to deliver incremental gains, while European equity markets were volatile.

August 2024 started with a sharp correction in the context of a JPY carry trade unwind (i.e. fast reduction in short yen positioning following hawkish BoJ decision), and a subsequent VIX spike triggered by dealers covering short Vega positions.

Global equity markets then rebounded and stabilised for the rest of the month, market participants expecting the US Federal Reserve to begin cutting rates in September. Earlier fears of a potential economic slowdown also eased, supported by stronger-than-expected GDP growth in the second quarter, which was revised upward to 3% from the previous estimate of 2.8%, while the latest US economic numbers point toward ongoing disinflation, still robust household consumption, and wage growth that outpaces inflation.

Large caps and the most defensive sectors outperformed in August, in particular Real Estate, Healthcare, and Communication Services.

In this context, the Short book contributed strongly to the performance, as smaller cap and higher beta short picks underperformed, in particular among industrials, a sector where valuation dispersion is elevated. The Short selection ended the month with a negative performance, while European Equity markets were generally up between 1% and 2%.

The mid-frequency statistical arbitrage strategy, which bets on short-term mean reversion of price relationships between cointegrated stocks following liquidity shocks, benefitted from elevated levels of market realised volatility and delivered strongly.

The fund is net long Financials and Industrials, and net short Consumer Discretionary and Utilities. The fund has increased its allocation to short picks in the Consumer Discretionary sector in recent weeks, with the addition of short luxury and food delivery names.

*Note: I EUR share class currently registered in LU, AT, CH, DE, ES, FR, UK, IT, NL, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

RAM Global Market Neutral Equity

The RAM (Lux) Global Market Neutral Equity Fund (Class-PI USD net of fee*) was up 3.15% in August, outpacing Global equity markets (MSCI World up 2.64% in a very volatile month).

August 2024 started with a sharp correction in the context of a JPY carry trade unwind (i.e. fast reduction in short yen positioning following hawkish BoJ decision), and a subsequent VIX spike triggered by dealers covering short Vega positions

Global equity markets then rebounded and stabilised for the rest of the month, market participants expecting the US Federal Reserve to begin cutting rates in September. Earlier fears of a potential economic slowdown also eased, supported by stronger-than-expected GDP growth in the second quarter, which was revised upward to 3% from the previous estimate of 2.8%, while the latest US economic numbers point toward ongoing disinflation, still robust household consumption, and wage growth that outpaces inflation.

Large caps and the most defensive sectors outperformed in August, in particular Real Estate, Healthcare, Consumer Staples and Utilities.

In this context the Short book contributed strongly to the performance, as smaller capitalisation and higher beta short picks underperformed. The Short selection ended the month with a flattish performance, while Global Equity markets were up between 2% and 3%.

The mid-frequency statistical arbitrage strategy, which bets on short-term mean reversion of price relationships between cointegrated stocks following liquidity shocks, benefitted from elevated levels of market realised volatility and delivered strongly.

The VIX arbitrage strategy, to which the fund has a 5% allocation today, experienced a significant drawdown, but recovered most of it into the end of August.

The fund remains long IT and Financials, and short Utilities and Energy.

* Note: PI USD share class currently registered in LU, CH, DE, DK, ES, FI, UK, IT, NO, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns. 

RAM Stable Climate Global Equities

The RAM (Lux) Systematic Funds - Stable Climate Global Equities Fund’s (hereinafter the ‘Fund’) (Class-PI USD net of fee*) was up 3.04% in August.

August 2024 started with a sharp correction in the context of a JPY carry trade unwind (i.e. fast reduction in short yen positioning following hawkish BoJ decision), and a subsequent VIX spike triggered by dealers covering short Vega positions.

Global equity markets then rebounded and stabilised for the rest of the month, ending the month up 2.64%, market participants expecting the US Federal Reserve to begin cutting rates in September. Earlier fears of a potential economic slowdown also eased, supported by stronger-than-expected GDP growth in the second quarter, which was revised upward to 3% from the previous estimate of 2.8%, while the latest US economic numbers point toward ongoing disinflation, still robust household consumption, and wage growth that outpaces inflation.

In this environment, market favoured low volatility names, which was already the case in July. Quality and Momentum names also outperformed, but to a lesser extent. On the contrary, Value factors strongly underperformed.

The strategy delivered positive results in Consumer Staples and IT. Utilities names, mainly picked by our EU Taxonomy aligned strategy, was also a strong contributor, Adverse stock selection in the Financial sector detracted the performance.

The large cap allocation of the strategy (85% of the fund) outperformed small and mid-cap allocations.

Europe was the best-performing region, up on average close to 5%, led by Nordic Countries, Spain and Germany. Asia Pacific also delivered strong returns, in particular Hong Kong and Australia. The US book lagged, up on average 2%.

Over the last rebalancing, the strategy reduced the allocation to Consumer Staples and Utilities while increasing Consumer Discretionary and Financials.

The fund's carbon footprint aligns with its sustainability goals, with a GHG intensity (scope 1, 2, & 3) representing less than a third of the global equity market average (~250 vs. ~950 TCO2/MSales).

Companies with stronger ESG ratings slightly underperformed the broader market, while firms with low carbon intensity finished on par.

*Note: PI USD share class currently registered in LU, AT, BE, FI, UK, NO, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

RAM Global Equity Income

The RAM (Lux) Global Equity Income Fund’s (hereinafter the ‘Fund’) (Class-IP USD net of fee*) underperformed its benchmark, the MSCI World High Dividend Yield, rising 2.5% for the month compared to 3.42% for the benchmark.

August 2024 started with a sharp correction in the context of a JPY carry trade unwind (i.e. fast reduction in short yen positioning following hawkish BoJ decision), and a subsequent VIX spike triggered by dealers covering short Vega positions.

Global equity markets then rebounded and stabilised for the rest of the month, ending the month up 2.64%, market participants expecting the US Federal Reserve to begin cutting rates in September. Earlier fears of a potential economic slowdown also eased, supported by stronger-than-expected GDP growth in the second quarter, which was revised upward to 3% from the previous estimate of 2.8%, while the latest US economic numbers point toward ongoing disinflation, still robust household consumption, and wage growth that outpaces inflation.

In this market environment, low-volatility stocks were favoured, continuing the trend from July. Quality and Momentum stocks also outperformed, though to a lesser extent, while Value factors significantly underperformed.

The top quintile of companies by dividend yield underperformed the rest of the market by 20 basis points, while the top quintile by shareholder yield underperformed by 70 basis points.

In terms of countries, the fund suffered from adverse stock selection in the US and UK. This was partly offset by strong stock picks in the Netherlands, Denmark, and Australia.

For the second consecutive month, the fund benefitted from its energy exposure, due to both stock selection and an underweight allocation in the sector. Conversely, the underweight in Consumer Staples negatively impacted performance, as the sector outperformed. The fund was also hurt by negative stock selection in Communication Services and Information Technology, particularly in the Packaged Software segment.

Mid-cap companies performed in line with large-caps, while small-caps underperformed by more than 2%, negatively impacting the fund’s small-cap allocation.

During the most recent rebalancing, the strategy reduced allocations to Consumer Discretionary and Industrials, while increasing exposure to Consumer Staples and Healthcare.

*Note: IP USD share class currently registered in LU, AT, CH, DE, DK, ES, FI, FR, IT, NL, NO, SE, SG (foreign restricted recognised scheme). Please click on the above link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

Important Information: The sub-funds mentioned above are Sub-Funds of RAM (Lux) Systematic Funds, a Luxembourg SICAV with registered office: 14, Boulevard Royal L-2449 Luxembourg, approved by the CSSF and constituting a UCITS (Directive 2009/65/EC). Mediobanca Management Company S.A. 2 Boulevard de la Foire 1528, Luxembourg, Grand Duchy of Luxembourg is the Management Company.

The information and analyses contained in this document are based on sources deemed to be reliable. However, RAM Active Investments S.A. cannot guarantee that said information and analyses are up-to-date, accurate or exhaustive, and accepts no liability for any loss or damage that may result from their use. All information and assessments are subject to change without notice.
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