March has proven to be a challenging month for global fundamental managers, with the cohort experiencing its worst performance since 2022. According to a recent report by Goldman Sachs Prime Brokerage, fundamental managers are on track to have their worst month since 2022, with a negative return of -5.4% on a monthly basis. This takes the cohort into negative territory for the year, with a decline of -1.4% in the first three months of 2023 alone.

The performance numbers are particularly concerning for fundamental US portfolios, which have fallen by -5.7% on a monthly basis and -3.8% year-to-date. This represents a significant departure from the historical trend of outperforming their non-fundamental counterparts during times of market volatility.

The reasons for this underperformance are not entirely clear, but some analysts attribute it to a combination of factors, including:

1. Interest Rate Expectations: The recent increase in interest rate expectations has had a negative impact on the performance of fundamental managers, who tend to perform better in low-interest rate environments.
2. Valuation Multiples: The multiple expansion that occurred during the bull market may have contributed to the underperformance of fundamental managers, as their valuations became less attractive relative to non-fundamental peers.
3. Macroeconomic Uncertainty: The ongoing macroeconomic uncertainty and geopolitical risks may be weighing on investor sentiment and leading them to flee to safer havens, such as bonds or cash.

While the underperformance of global fundamental managers is certainly concerning, it is important to note that past performance is not a guarantee of future results. Fundamental managers have historically outperformed their non-fundamental counterparts during times of market stress, and there are reasons to believe that they may continue to do so in the future.