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From all of us at Sage Capital, we wish you all the very best for the festive season and the New Year.
During the month of November, the CC Sage Capital Absolute Return Fund delivered a net return of 2.24%* and the CC Sage Capital Equity Plus Fund delivered a net return of 0.61%*, outperforming their respective benchmarks by 2.24% and 1.15%. 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 finished down -0.54% in November with weakness skewed to the end of the month with 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 Sage Groups during the month were Resources (+4.7%), REITs (+4.4%) and Defensives (+4.1%) with weakest being Yield (-7.4%).
The Australian economy has shown incredible resilience with New South Wales and Victoria bouncing back after lockdowns and consumers eager and willing to spend. Companies continue to report rising costs, stock shortages, supply chain issues and a struggle to find staff resulting in higher wages which will result in margin pressure for some. We believe that a higher level of inflation is here to stay, at least for a while, and continues to prefer companies with strong pricing power that can pass on any inflationary cost pressures to protect margins as well as those that directly benefit from inflation such as a range of resources and cyclicals.
More broadly, we expect the emergence of the Omicron variant to result in heightened volatility into the end of the year as the market awaits further information on its transmissibility, vaccine effectiveness and severity of disease. The outcome here will be a significant swing factor for the shape of the global recovery. Assuming no meaningful economic setback from Omicron, we expect bond yields to continue to move higher as inflation moves to be front of mind for central banks. More hawkish commentary from the US Federal Reserve could result in a faster removal of policy support and leave valuations at the more speculative end of the market vulnerable to a correction. We are looking for shorting opportunities in this part of the market while continuing to invest in solid companies that are delivering strong earnings growth.
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 while benefiting from bottom-up stock selection.
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