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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.
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.
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