Insights

Performance and market insights - December 2021

Market Insight
January 13, 2022

Performance summary

During the month of December, the CC Sage Capital Absolute Return Fund delivered a net return of 0.02%* outperforming its benchmark by 0.02%*. The CC Sage Capital Equity Plus Fund delivered a net return of 2.74%*, underperforming its benchmark by -0.01%. Both portfolios remained relatively neutral across the Sage Groups^ allowing each strategy to be well insulated from unexpected systematic macro risks while benefiting from bottom-up stock selection.

The S&P/ASX 200 Accumulation Index ended December 2.75% and 17.23% for the year. The market was weaker at the start of the month as concerns lingered around the emergence of the Omicron Covid-19 variant and comments from the US Federal Reserve signalling inflation may not be transitory and tapering may be accelerated. The strongest performing Sage Groups during the month were Resources (+7.5%), Yield (+5.0%) and REITs (+4.8%) with the weakest being Growth (-4.0%).

Portfolio positioning and outlook

As we look forward, market direction and stock performance is likely to be increasingly driven by inflation expectations and central bank policy and less by the vagaries of Covid-19. While the hyper-infectious Omicron Covid-19 variant is surging around the world, the silver lining is that it appears to have mutated into more of an upper-respiratory infection and the mortality rate has been plunging. This is beginning to look more like a disease that can be lived with on par with influenza than one requiring ongoing controls and restrictions. While this may ultimately help relieve pressure on the beleaguered travel industry, the strength of the broader economic recovery may now be moving out of the goldilocks zone.

Economic strength combined with supply chain disruptions has seen inflation surge well above expectations. In its recent minutes, the US Federal Reserve acknowledged that this inflation pressure isn’t merely transitory but has broadened out across the economy. Importantly, the US economy and many others around the world are now near full employment and there is evidence that higher inflation is now feeding back into stronger wage growth. This dynamic threatens the longer-term stability of inflation expectations and has caused the US Federal Reserve to accelerate its tapering of asset purchases and bring forward its expectations of interest rate rises. This is likely to present a very different and more challenging environment for asset prices moving forward. Higher interest rates are likely to see valuation multiples compress across the market which will favour Cyclical and Yield Sage Groups over the Growth Sage Group, but may see a broader defensive tone if the market views that central banks need to drive a recessionary outcome to control inflation.

As always, the portfolios are well diversified and we remain relatively neutral across the Sage Groups which allows the portfolio to be well insulated from systematic macro risks whilst benefiting from bottom-up stock selection.

* 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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