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The CC Sage Capital Absolute Return Fund returned 1.81%* in April versus the RBA Cash Rate of 0.27%.
The CC Sage Capital Equity Plus Fund returned 2.62%* in April outperforming the S&P/ASX 200 Accumulation Index by 0.77% which returned 1.85%.
The S&P/ASX 200 Accumulation Index rose 1.85% in April as the RBA paused rate rises after 10 consecutive rate hikes on the back of evidence of slowing inflation and increased expectations that the rate hike cycle is close to finishing.
The strongest Sage Groups^ were Gold and REITs with Resources being the only Sage Group finishing in negative territory. Gold equities rallied, playing catch up to the move up in the gold price in March on the back of a weaker US dollar and declining real yields. REITs were strong as bond yields fell sharply which is supportive for REIT valuations and concerns around the stability of the US banking system, and commercial property valuations subsided. The Resources Sage Group was weak, driven by iron ore prices falling sharply on concerns that China’s post-Covid recovery may be stalling and negative margins for steel makers.
The monetary policy tightening cycle is showing signs of slowing with the US Federal Reserve and RBA both noting the lag between monetary policy tightening and the impact on economic activity and inflation. However, core inflation remains sticky, and this is likely to keep a tightening bias at central banks. Credit conditions have tightened with stricter lending standards, particularly in the wake of a spate of US regional bank collapses. This will likely begin to impact economic growth, but at this stage activity remains robust with labour markets and corporate profitability both exhibiting strength. Consumers have also proven to be relatively resilient through the rate hike cycle, but there are early signs of some consumer stress in recent sales updates from retailers which suggests that the higher cost of living and higher interest rates are starting to bite. We expect economic activity to begin to slow materially over the next six months.
With such powerful forces driving global asset markets, stock selection within the Sage Groups becomes more important than ever. We remain cautious on companies exposed directly to discretionary consumer spending and look for strong industry structures where margins can be protected. The travel sector is an example where rationalised market structures and a strong appetite for travel should allow profits to be resilient in an economic downturn likely due to pent up demand post the pandemic.
We continue to prefer companies with earnings streams that are relatively sheltered from the economic cycle such as healthcare, telecommunications and supermarkets and are cautious on banks as aggressive competition for deposits and loans will reduce margins going forward, with the risk of credit losses also rising.
On the resources front, we are cautious on iron ore due to concerns over the strength of the China property recovery and ongoing weakness in global manufacturing. We are more positive on oil as OPEC supply discipline provides some downside protection from economic weakness. Lithium has been very volatile with prices falling as a slowdown in electric vehicle sales growth saw supply chain destocking, although stability is now returning as longer-term growth dynamics play out.
We continue to maintain low net exposure to the Sage Groups to limit exposure to unpredictable macro risks. As always, the portfolios are well diversified, liquid and positioned to weather the myriad of unknowns.
Read the monthly reports for additional commentary.
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