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The CC Sage Capital Absolute Return Fund returned 0.63%* in February, outperforming the RBA Cash Rate which returned 0.33%.
The CC Sage Capital Equity Plus Fund returned -3.58%* in February, outperforming the S&P/ASX 200 benchmark by 0.21%, which returned -3.79%.
During the February reporting period, most companies released their half-yearly updates and earnings, with a handful announcing their full-year annual financial results. Share price reactions were extremely volatile with large moves on relatively small beats and misses, particularly on the downside. Amidst this, the fund had a small positive month with some outsized winners and losers. The biggest net contributors to performance came from the Sage Groups# Resources and Global Cyclicals, while Growth was a negative.
Performance in Resources was aided by an underweight position in Mineral Resources (ASX: MIN -35%), which faced challenges due to weather disruptions in the West Pilbara region of Western Australia. These disruptions have delayed the ramp-up of the Onslow iron project, that requires a 150km long haul road to be resurfaced, and exacerbated issues with high company debt levels. Additionally, within the Resources group, Sage Capital benefited from an overweight position in South32 (ASX: S32 +5%), where improving aluminium and copper prices, as well as better production performance lifted profits.
The Global Cyclicals group’s performance was largely due to an underweight position in Reece (ASX: REH -28%). Reece, a relatively high P/E stock in the plumbing supplies sector, faced challenges due to margins pressure in Australia, along with a new competitor taking market share in the US.
On the negative side, the Growth group was impacted by overweight positions in Block (ASX: XYZ -32%), which missed expectations of accelerating growth in gross merchandise value (GMV) in the US. Additionally, WiseTech Global (ASX: WTC -28%) declined following a tumultuous period that included a trading halt, while majority owner Richard White spilled the board. A downgrade to full year earnings guidance as new product rollouts were delayed also weighed on the WiseTech Global share price. An underweight position in Seek (ASX: SEK +4%) also dragged as investors looked through a weak result to a potential cyclical upswing in employment classifieds.
After a brief respite in January, the global bull market of 2024 appears to be faltering. At the forefront of the news cycle is geopolitical uncertainty with US President Trump threatening tariffs and then delaying them, but also withdrawing support for Ukraine against Russia. This policy uncertainty has been unsettling markets and volatility has been rising. In the background though, fundamental market forces have also become stretched. Sage Capital has been highlighting the disconnect between bonds and equities for some time and the excessive valuation multiples being paid for certain stocks. The odds of a sharp valuation correction are rising, although economic fundamentals and company profitability remain reasonably robust, so a more protracted bear market appears less likely.
In China, policy settings have moved to a more stimulatory basis to combat deflationary pressures. A re-embracing of private enterprise is seeing fund flows begin to move out of developed markets, including Australia, and into China. While more aggressive growth targets would generally help Australian equities through stronger commodity prices, China’s current policy focus is centred on stimulating domestic consumption rather than export-driven growth. In fact, policy is focusing on cutting excess industrial capacity, including in the steel industry, as increased anti-dumping actions are being taken by its trading partners. This is generally negative for bulk commodities such as iron ore, particularly as supply begins to tick higher. Additionally, oil prices appear somewhat capped as US producers continue to increase output and the Organisation of the Petroleum Exporting Countries (OPEC) begins returning barrels to the market. In contrast, base metals such as copper and aluminium could be set for upside due to their greater exposure to consumer goods and electrification trends.
The recent interest rate cut by the RBA has helped to boost sentiment around economic growth in Australia, but the RBA was at pains to point out that further interest rate cuts will be limited due to sustained elevated inflation and tight labour markets. As we go into a federal election cycle, we are not expecting too much from the domestic consumer in the short term, reflecting broader economic caution and uncertainty.
The portfolios are constructed using Sage Groups to minimise macroeconomic risk by maintaining low net exposure across diversified, liquid investments, providing potential resilience in an uncertain environment.
Read the monthly reports for additional commentary.
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