The CC Sage Capital Absolute Return Fund returned -0.30%* in January versus the RBA Cash Rate of 0.27%. Over 1 year, the CC Sage Capital Absolute Return Fund returned 4.64%* versus the RBA Cash Rate return of 1.50%.
The CC Sage Capital Equity Plus Fund returned 5.91%* in January versus the S&P/ASX 200 Accumulation Index return of 6.23%. Over 1 year, the CC Sage Capital Equity Plus Fund returned 14.53%* versus the S&P/ASX 200 Accumulation Index return of 12.21%.
The S&P/ASX 200 Accumulation Index finished January up 6.23%, the strongest start since 1986 and in stark contrast to January 2022 which recorded a -6.35% decline. The market was driven higher as bond yields fell on expectations of global inflation peaking, hopes of a soft landing in the US, and China reopening.
All Sage Groups^ were up for the month, the strongest being Gold, driven by a rise in the gold price as real interest rates fell, REITs which rallied as valuations were supported by 10-year bond yields falling, and Domestic Cyclicals driven by a series of strong Christmas trading updates from cyclical retailers such as JB Hi-Fi (ASX: JBH) and Super Retail Group (ASX: SUL). The weakest Sage Group was Global Cyclicals driven in large part by a fall in Incitec Pivot (ASX: IPL -9%) due to a sharp fall in the benchmark ammonia price, from which IPL’s products are priced, as warmer weather in Europe saw gas prices recede.
The outlook for equities remains heavily influenced by actions of the central banks. In the US, inflation looks to have peaked, forward indicators of growth have weakened and consumer spending is starting to slow, all signs that the recent aggressive rate hikes are working. However, there is still work to be done in fighting inflation with services and wage inflation remaining high. While future rate hikes are expected to be in smaller increments, the jury is still out on how long this rate hike cycle will continue and whether inflation can genuinely be tamed without a material contraction in activity and a drop in earnings. The tightening cycle may last longer than markets are currently pricing in with the January rally resulting in the market forward multiple rerating to its long-term average.
Within Australia’s February reporting season, we expect companies to generally report robust results, however attention will be on the outlook statements especially with regards to demand and managing cost inflation. There are still plenty of positives for Australian companies with real interest rates still negative, China’s economic activity picking up coming out of lockdown and companies generally having strong balance sheets. However, we expect interest rate hikes to become increasingly evident in the second half of this calendar year with a potential recession to follow. Hence, we remain cautious on companies directly exposed to discretionary consumer spending and lower house prices and prefer those with resilient earnings streams and pricing power in industries such as healthcare, insurance and telecommunications.
We continue to focus on individual company earnings to drive stock selection and maintain low net exposure to the Sage Groups to limit exposure to unpredictable macro risks. The portfolios are as always, well diversified, liquid and positioned to weather the myriad of unknowns.
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