Performance summary

The CC Sage Capital Absolute Return Fund returned -2.32%* in July, underperforming the RBA Cash Rate which returned 0.39%.

The CC Sage Capital Equity Plus Fund returned 2.82%* in July, underperforming the S&P/ASX 200 Accumulation Index which returned 4.19%.

Top positive contributors to performance were short positions in Fortescue Ltd (ASX: FMG -12%) which fell on lower iron ore prices and gave guidance for materially higher capital expenditure going forward and NextDC (ASX: NXT -5%) which fell along with many other Artificial Intelligence (AI) related names globally after a strong run year to date. Long positions in James Hardie Industries (ASX: JHX +16%) and Qantas (ASX: QAN +10%) also benefited from expectations of interest rate cuts sooner than expected due to softer inflation data.

On the negative side, detractors were a long position in South32 Limited (ASX: S32 -16%) on the back of a large write down of its Worsley Alumina project after receiving conditions of approval from the Western Australian Environment Protection Authority which puts the economics of the project into question and a short position in Wesfarmers (ASX: WES +13%) which was strong along with most consumer discretionary related names as the market focused back on interest rate cuts rather than hikes.

Portfolio positioning and outlook

The portfolios are constructed using Sage Groups^ to minimise macroeconomic volatility as much as possible with a focus on individual companies within these groups. Market volatility can provide many opportunities and attractive entry points to take long positions in high quality companies with good growth who can successfully navigate a softer economic environment, and short positions in companies whose earnings may be more at risk or have poor execution and are more vulnerable to external shocks.

As we head into the 2024 August reporting season, company earnings will be in focus. We expect to see some signs of slowing in the domestic economy and companies giving generally cautious outlook statements. We remain cautious on discretionary retail, particularly given the recent expansion in valuations and prefer exposure to the travel names with travel demand still relatively solid with demographic skewed spend from retirees.

We anticipate iron ore and lithium to remain weak due to excess industrial capacity (particularly in advanced manufacturing such as automotives and renewable energy) created in China due to domestic policy that encourages the economy to diversify away from housing. We think this has led to dumping fears in Europe and the United States with a raft of tariffs to be proposed, on steel and electric vehicles (EV). This is likely to see EV and lithium demand continue to disappoint and narrow the areas for further steel production as the Chinese property sector continues to contract.

We remain optimistic on base metals, as copper is far more constrained in the medium term even if battery demand disappoints, and retain our preference for insurers over banks which are historically expensive.

We continue to maintain low net exposure to each Sage Group to limit the impact of unpredictable macroeconomic risks with the portfolios being well diversified and liquid.

Read the monthly reports for additional commentary.

• ‍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.