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The CC Sage Capital Absolute Return Fund returned -1.80%* in October, underperforming the RBA Cash Rate which returned 0.37%.
The CC Sage Capital Equity Plus Fund returned -2.44%* in October, underperforming the S&P/ASX 200 by -1.13%, which returned -1.31%.
Strongest contributors to performance were Sage Groups#, Domestic Cyclicals, while REITs was a small positive, and detractors were spread amongst the other groups with Yield the weakest group. In the strongest group, Domestic Cyclicals, Qantas (ASX: QAN +9%) was a standout performer, whose share price has been recovering in a stable competitive environment and falling fuel costs which have boosted profits. However, travel was broadly weaker with long positions in Flight Centre (ASX: FLT -29%) and WEB Travel Group (ASX: WEB -45%) impacting performance with Flight Centre expressing cautious guidance with top line revenue being impacted by lower airfares. WEB for instance, having only recently demerged its online travel booking business, issued a poorly communicated and unexpected profit warning citing weak margins in Europe due to the Olympics and competitor discounting. While this dragged on the Global Cyclicals group, an offset came from a short position in Reece (ASX: REH -19%) which reported weaker than expected 1Q sales and provided guidance that was lower than market expectations due to softer renovation activity in the US and softening prices. In the weakest group, Yield, banks outperformed insurers and drove a low success rate across the group.
There was a bout of corporate scandal in the month. The Fund was boosted by a short in Mineral Resources (ASX: MIN -24%) which sold off sharply amidst newspaper articles alleging tax avoidance and related party transactions at inflated prices by Chris Ellison and other founding executives. There was also a wind down of optimism around China stimulus, which was partially offset by a long position in WiseTech (ASX: WTC -13%). As founder Richard White was forced to step into a consulting role after allegations of conflicts of interest in his relationship with some employees.
Sage Capital continues to favour new energy metals such as copper and aluminium rather than iron ore which appears to have peaked structurally with Chinese steel production. Domestically, hopes around rapid interest rate cuts have also been dashed. Stronger than expected employment growth and more persistent underlying inflation are likely to keep the RBA on hold well into next year. As the impact of tax cuts fade, the run-up in the valuations of many retail stocks appears unsustainable.
The portfolios are constructed using Sage Groups with a focus on individual companies within these groups. The portfolio continues to maintain low net exposure to each Sage Group to limit the impact of unpredictable macroeconomic risks and are well diversified and liquid.
Read the monthly reports for additional commentary.
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