Performance summary

During the month of January, the CC Sage Capital Absolute Return Fund delivered a net return of 2.01%* outperforming its benchmark by 2.01%*. The CC Sage Capital Equity Plus Fund delivered a net return of -5.40%*, outperforming its benchmark by 0.95%. 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.

​​​Stock specific news flow was light in January as usual, however, minutes from the recent US Federal Reserve meeting had a big impact on the equities market. The S&P/ASX 200 Accumulation Index fell -6.35% as bond yields climbed higher on the back of higher inflation and the US Federal Reserve flagging it would soon be appropriate to raise interest rates and end bond purchases.

The strongest performing Sage Group was Resources (+4.9%) which was also the only Sage Group to give positive absolute returns. The weakest Sage Groups were Growth (-13.9%), Gold (-12.6%) and REITs (-9.7%). The Resources Sage Group was driven by strength in energy and iron ore stocks as oil jumped 17% on the back of global supply concerns and iron ore rose 24% on the expectation of increasing Chinese demand and stimulus measures. The rise in bond yields was the key driver behind the weakness in the Growth, Gold and REITs Sage Groups as stocks in these groups experienced material valuation multiple compression.

Portfolio positioning and outlook

The equity market is at an inflection point following the pivot to a more hawkish monetary policy stance by the US Federal Reserve. Recent tightening by the Bank of England and a removal of forward guidance by the European Central Bank also raises the prospect of a synchronised tightening in global liquidity conditions. As we have been flagging, this move to combat persistently high inflation is not a favourable backdrop for asset prices.

The sharp market de-rating in January, with valuation multiple contractions focused around expensive equities, is likely to continue as central banks begin to drain liquidity from the system. Fundamentally the economy is growing and corporate profits are healthy, however stock prices will continue to be impacted heavily by monetary policy. The RBA has flagged that interest rates are likely to go up sooner than the original 2024 guidance but highlighted that Australia’s wage inflation is much lower than the US, where a rate hike is likely to happen much earlier. The timing of a rate hike in Australia will depend on the rate of wage growth as a driver of more persistent inflation, but leading indicators already show this accelerating as unemployment approaches record lows.

The upcoming reporting season should see companies deliver solid top line growth, however the impact of rising costs and the ability to raise prices to compensate will be in the spotlight. We continue to prefer companies with strong pricing power and the ability to control or pass on costs. Russia-Ukraine tensions are likely to continue to drive oil price volatility, along with underinvestment and improving demand, which would have flow on effects to inflation and risk premia. Geopolitical tensions, including China-Taiwan remain a tail risk for markets.

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.

• ‍CC Sage Capital Absolute Return Fund monthly report
• CC Sage Capital Equity Plus Fund monthly report

* 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.