Insights

Performance and market insights - April 2022

Market Insight
May 12, 2022

Performance summary

During the month of April, the CC Sage Capital Absolute Return Fund delivered a net return of 0.28%* outperforming its benchmark by 0.28%. The CC Sage Capital Equity Plus Fund delivered a net return of -0.62%*, outperforming its benchmark by 0.23%.

The S&P/ASX 200 Accumulation Index finished April down -0.85%. The strongest performing Sage Groups^ were Global Cyclicals and Defensives and the weakest were Resources and Growth. The Global Cyclicals Sage Group was driven by a rebound in travel stocks such as Flight Centre (FLT +16%) and Corporate Travel (CTD +11%) on the back of positive commentary from US airlines and a strong Easter travelling period domestically. The Defensives Sage Group was driven by a surprise takeover offer of Ramsay Healthcare (RHC+24%) and Utilities, as investors flocked to stocks that may provide a hedge against inflation after a higher than expected inflation number for the March quarter. Weakness from the Resource Sage Group was driven by prices of most commodities falling as China re-entered Covid-19 lockdowns, and Growth was down as a result of rising bond yields and the Nasdaq having its worst month since 2008.

Portfolio positioning and outlook

Inflation around the world is running at levels not seen since the 1970s. With inflation rates of 5.1% in Australia, 8.5% in the US and 7% in the UK, interest rates need to keep rising to keep inflation in check. Narratives from Central Banks, as well as market pricing, indicate that cash rates will move back to a “neutral” level quite rapidly. Our concern is that with economies at full employment globally, strong wage growth will see inflation persist at higher levels. The ability of Central Banks to manufacture a soft landing looks slim with prospects of a recession increasing.

The outlook is being further complicated by the continuing sanctions resulting from the Russian invasion of Ukraine which are continuing to support higher energy prices, and further Covid-19 lockdowns in China are causing ongoing supply chain headaches for companies around the world. These uncertainties, along with labour market tightness and rapidly rising costs across the board, remain a challenge for many companies. In this environment, we retain a preference for companies who either have positive earnings exposure to higher yields or reasonably defensive earnings and strong pricing power. In addition, as discount rates rise due to a higher risk-free rate and equity risk premium, valuations of high growth companies are particularly impacted. As such, we are cautious on stocks that are priced to perfection.

We expect unpredictable macro drivers to continue to be a large influence on equity markets. However, the investment team’s focus on individual company earnings and utilising Sage Groups for portfolio construction allows systematic macro risks to be minimised as much as possible while benefiting from bottom-up stock selection. The Sage Capital portfolios are as always, well diversified, liquid and positioned to weather the myriad of unknowns.

* Past performance is not indicative of future performance. ^ Sage Capital uses a custom grouping system for long short positions (Defensives, Domestic Cyclicals, Global Cyclicals, Gold, Growth, REITs, Resources and Yield). With a focus on the principal macro earnings drivers for each stock, Sage Groups allow for comparisons to GICS for selecting stocks within a sector.

This information is for wholesale and professional investors only and has been prepared by Sage Capital Pty Ltd ACN 632 839 877 AR No. 001276472 (‘Sage Capital’). Channel Investment Management Limited ACN 163 234 240 AFSL 439007 (‘CIML’) is the responsible entity and issuer of units in the CC Sage Capital Equity Plus Fund ARSN 634 148 913 and the CC Sage Capital Absolute Return Fund ARSN 634 149 287 (collectively ‘the Funds’). Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (‘Channel’) provides investment infrastructure services for Sage Capital and is the holding company of CIML. This information is supplied on the following conditions which are expressly accepted and agreed to by each interested party (‘Recipient’).

This information contains general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. It is intended solely for wholesale clients (including sophisticated investors) as defined under sections 761G and 761GA of the Corporations Act 2001 (Cth).

The information provided should not be considered personal advice, a recommendation, or an offer to invest in the Funds. Recipients should not rely on this information in making investment decisions. A Recipient should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice.

Neither Sage Capital, Channel, CIML or their representatives and respective employees or officers (collectively, ‘the Beneficiaries’) make any representation or warranty, express or implied, as to accuracy, reliability or completeness of this information or subsequently provided to the Recipient or its advisers by any of the Beneficiaries, including, without limitation, any historical financial information, the estimates and projections and any other financial information derived there from, and nothing contained in this information is, or shall be relied upon, as a promise or representation, whether as to the past or the future. All investments contain risk. Past performance is not a reliable indicator of future performance.

For further information and before investing, please read the Product Disclosure Statement and Target Market Determination which is available from www.channelcapital.com.au
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