Performance summary

Sage portfolios had a strong month in January, outperforming what was a fairly flat market where the S&P/ASX 200 Accumulation Index rose by 0.31%. CC Sage Capital Absolute Return Fund generated net returns of 1.97% while CC Sage Capital Equity Plus Fund delivered net return of 1.26%, both outperforming their respective benchmarks. Pleasingly this return came across both our long and short exposures and all eight Sage Groups~ (Defensives, Domestic Cyclicals, Global Cyclicals, Gold, Growth, REITs, Resources and Yield).*

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Market review

The S&P/ASX 200 Accumulation Index rose by 0.31% during the month, finishing relatively flat after a sell-off in the final days of the January. A steeping yield curve triggered a rotation away from long duration lower growth assets into recovery sectors. As a result, the best performing Sage Groups across the market were Global Cyclicals, Domestic Cyclicals and Yield while REITs, Defensives and Gold  lagged the overall index.

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Portfolio positioning and outlook

The prospect of a broad recovery in economic activity continues both domestically and abroad. This is being driven by steady progress on vaccinations allowing some likely easing in lockdown conditions as well as plentiful fiscal and monetary support. The portfolio is well positioned for this recovery, although we have been rebalancing some of our domestic retail exposure towards home building. Retailers have been producing quite staggering profits but, will face some headwinds as JobKeeper payments and super withdrawals wind down. Housing demand is continuing to increase as building incentives combine with low interest rates and a desire for space driven by the work from home trend. This acceleration in household formation should last the next couple of years but, may need a more aggressive immigration program to maintain demand after that. The early success of vaccines is also improving sentiment towards the travel industry which had been consolidating in recent months.

The most significant risk across markets are the clear pockets of speculation that are building up. This is apparent in the frenzy around IPO’s as well as the expansion in the market capitalisation of loss-making companies. Most recently, the lunacy of GameStop has been making headlines in terms of retail speculation and stop losses on shorts. The broad diversification and style neutrality of our approach means that we are largely untouched by this volatility. While we see central banks continuing to support markets with easy liquidity, a recovery in growth and inflation as the oil price collapse rolls off could easily see bonds pressured and further sharp rotations between growth and value. With these risks we continue to view it as prudent to maintain a balanced style and avoid positions in the more speculative parts of the market.

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* Past performance is not an indicative of future performance. The inception date of the CC Sage Capital Absolute Return Fund and the CC Sage Capital Equity Plus Fund is 20 August 2019.

~Sage Capital uses a custom grouping system for long short positions including Defensives, Domestic Cyclicals, Global Cyclicals, Gold, Growth, REITs, Resources and Yield.