The CC Sage Capital Absolute Return Fund returned 1.21%* in November, outperforming the RBA Cash Rate which returned 0.35%.
The CC Sage Capital Equity Plus Fund returned 4.24%* in November, outperforming the S&P/ASX 200 by 0.45%, which returned 3.79%.
Strongest contributors to performance were Sage Groups#, Growth, Yield and Defensives with the main detractor being Resources. Performance in Growth was driven by long positions in Block Inc (ASX: SQ2 +24%), which rallied on renewed optimism for the US consumer outlook and further financial deregulation following Trump’s election win. Telix Pharmaceuticals (ASX: TLX +18%) was strong due to several positive announcements including a payment improvement decision by the Centers for Medicare and Medicaid Services for its radiopharmaceutical products. Yield was driven by a long position in Computershare (ASX: CPU +21%), and insurers QBE Insurance Group (ASX: QBE +16%), which both benefited from the shift up in US interest rate expectations during the month, and Insurance Australia Group (ASX: IAG +14%), which rallied into its investor day and extremely benign weather. In Defensives, Aristocrat (ASX: ALL +11%) was a strong performer reporting its FY24 results with US gaming machine deliveries beating prior bullish guidance.
Detractors on the negative side were long positions in Pilbara Minerals (ASX: PLS -16%), which fell following an index deletion and continued weakness in the lithium price, and uranium miner Paladin Energy (ASX: PDN -26%) which downgraded its production guidance, and a short position in Origin Energy (ASX: ORG +13%) which rallied on higher electricity future prices.
The S&P/ASX 200 Accumulation Index leapt +3.79% in November, closing near an all-time high on the back of Trump winning the US election with optimism around lower corporate tax rates and a lighter regulatory touch. Bond yields fell 16 basis points to 4.34% driving outperformance of technology stocks in particular, and underperformance of resources as China remains weak. Momentum in banks continued with the sector having outperformed resources by 59% over the past 12 months and now comprises 24% of the market with resources at 17%. The S&P/ASX 200 Index is now trading at over 18x on a PE basis versus its 10-year average of 16x.
All eyes will be on changes in Washington when US President-elect Trump moves into the Oval Office in January. The implications of potential US tariffs on a wide range of goods from various countries has been a hot topic of late and has implications for trade flows, inflation and the timing of further interest rate cuts. The devil is in the details once the new administration takes office, but there is significant potential for volatility across commodity, bond and equity markets.
The Australian economy remains relatively healthy, providing some support to the somewhat elevated valuation levels. Early feedback from the Black Friday sales has been positive, as the unemployment rate remains low and bad debts remain contained. Though the economy remains two-tiered, as wealthier asset owners are doing well under higher interest rates while there is evidence of stress in indebted households with a growing trend in past due loans. This inequality will likely become a political battleground in the new year when the next Federal election is due to be called.
China's stimulus efforts continue to underwhelm market expectations of big bang spending on infrastructure and housing as commodity prices have generally softened. However, policy has taken a clear shift with the Chinese government drawing a line under equity and house prices. However, we believe policy is likely to focus on stimulating confidence and consumption and to this end we expect more support for the equity market as housing affordability is still a major issue. As such, we continue to favour base metals over bulk commodities.
The portfolios are constructed using Sage Groups to minimise macro volatility with a focus on individual companies within these groups. We maintain low net exposure to each Sage Group to limit the impact of unpredictable macro risks and as always, the portfolios are well diversified and liquid.
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