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The CC Sage Capital Absolute Return Fund returned -2.81%* in November versus the RBA Cash Rate of 0.23%. Over the CYTD, the CC Sage Capital Absolute Return Fund returned 8.08%* versus the RBA Cash Rate return of 0.98%.
The CC Sage Capital Equity Plus Fund returned 4.97%* in November versus the S&P/ASX 200 Accumulation Index return of 6.58%. Over the CYTD, the CC Sage Capital Equity Plus Fund returned 6.30%* versus the S&P/ASX 200 Accumulation Index return of 2.20%.
The S&P/ASX 200 Accumulation Index rose 6.58% in November with all Sage Groups^ being positive as investor sentiment improved in anticipation of a slowdown in the pace of rate rises with inflation peaking and China issuing earlier than expected policy responses regarding reopening and property support measures. Gold and Resources were the strongest Sage Groups with Yield being the weakest. Gold stocks rallied on the back of a higher gold price driven by lower real yields and a fall in the US Dollar Index. Resource stocks were driven primarily by strength in the iron ore price which rose 23% on the back of the Chinese policy announcements. The Yield Sage Group was the weakest as bond yields fell which impacts the short-term earnings of stocks in this group.
Headline inflation appears to be close to a peak and central banks have flagged the pace of rate rises will slow from here which has driven positive sentiment in equity and bond markets. There are conflicting forces around inflation though with goods inflation falling rapidly while tight labour markets and strong wages growth is keeping services inflation elevated. This presents a challenge for central banks and markets because even though we are approaching the terminal cash rate, policy will likely need to remain restrictive for some time until slack emerges in labour markets. A recession will be hard to avoid and the downside risks to earnings are not currently being priced by equity markets.
Domestically we are yet to see a significant impact from rate rises in economic activity and consumer spending with unemployment at its lowest since the 1970s. We expect retailers to enjoy another strong Christmas, however the roll-off of cheap fixed rate mortgages, increased variable rate mortgage payments and higher cost of living pressures will become increasingly evident as 2023 unfolds.
Recent market exuberance around a US Federal Reserve rate pause or pivot will likely be replaced by concerns around corporate profits as weakening demand and wage rises, which tends to lag inflation, flow through and hit company profit margins.
On the resources front, despite recent market excitement on news regarding China reopening and policy actions to support the Chinese property market - we remain cautious on iron ore. Regardless of pent-up demand from lockdowns, we believe the upside is capped and the large miners' share prices have overshot fundamentals as China is still heavily exposed to the global manufacturing cycle which will be the main point of weakness to help normalise inflation. The market is understandably cautious on the oil price with the bond market signalling a US recession, but this is possibly the point of greatest leverage to a China reopening with increased mobility and travel. We remain constructive on the broader energy complex as a combination of underinvestment and tight European supplies keeping prices elevated.
Overall, 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.
Read the monthly reports for additional commentary.
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