Insights

Performance and market insights - November 2023

Market Insight
December 18, 2023

Performance summary

The CC Sage Capital Absolute Return Fund returned -1.03%* in November versus the RBA Cash Rate of 0.35%.

The CC Sage Capital Equity Plus Fund returned 4.14%* in November, underperforming the S&P/ASX 200 Accumulation Index by -0.89%, which returned 5.03%.

The S&P/ASX 200 Accumulation Index rallied 5% in November driven by a 50 basis point (bp) fall in long term bond yields despite the RBA lifting rates by another 25 bps. US equities were even stronger with the S&P500 up 9% on the back of more benign inflation and commentary from US Fed Chairman, Powell indicating the possibility of rate cuts in 2024. Commodities were mixed with oil falling 5% on weaker Chinese Purchasing Managers' Index (PMI) and inventory data, and iron ore rose 8% as China’s crude steel production remains robust. Quarterly results and commentary at AGMs were mixed with the banking and financial side of the economy weak, but companies in the real economy such as building still benefiting from a backlog of work. All Sage Groups^ ended in positive territory for the month with Growth and REITs being the strongest performers driven by lower bond yields, and Resources being the weakest, dragged down by energy stocks as prices for oil and gas declined.

Portfolio positioning and outlook

The US and Australian central banks have so far been successful in slowing inflation while not pushing the economy into a full-blown recession. Australian wage and jobs data continues to be strong with the unemployment rate at a very low 3.7% and house prices back up to near record highs, despite 13 interest rate rises. This, combined with migration driving population growth of over 2% this year and the boom in superannuation and interest benefits being received by senior Australians, is helping to prevent a collapse in consumption. At 5.3% trimmed mean inflation has come down from its highs, but is still above target, prompting RBA Governor, Bullock to maintain a hawkish rhetoric indicating further rate hikes in 2024 are possible if the decline doesn’t continue. In the US, inflation has continued to moderate, with core Personal Consumption Expenditures (PCE) inflation sitting at 3.5%, although this is still substantially above target. With the easy gains of normalising goods inflation having been made and still tight labour markets, expectations of rate cuts next year may prove to be premature. Nevertheless, we expect significant volatility around the global inflation trajectory as markets attempt to price the relative likelihood of soft versus hard landings.

After several years of earnings being distorted by the lockdowns associated with Covid-19, the outlook is returning to a semblance of normalcy. Winners and losers among retailers, healthcare and travel are washing through. However, the lingering effects of inflation and higher interest rates are still being felt acutely in poor housing affordability. Despite strong population growth and tight rental markets, the outlook for housing construction and associated retailing looks challenged at best. Similarly, across consumption sectors there are clear divergences between younger highly geared households cutting back and older wealthier ones spending more on leisure and travel. Associated dynamics are occurring in the banking sector where low book growth, competitive pressure on net interest margins and increasing compliance and technology costs are weighing on profit growth.

In commodities, we remain cautious on lithium stocks in the short term as supply appears to have been coming on faster than demand growth and supply chains still appear overstocked. We are more neutral on iron ore as Chinese steel production has remained reasonably robust with the aid of exports and policy easing measures. Oil and gas have been weaker across the year, mainly as stronger onshore US production has offset the impact of Saudi cuts, but with ongoing geopolitical tensions and prices having pulled back, it remains an attractive area for risk diversification.

Overall, across the portfolios, we retain a preference for stocks with strong pricing power able to drive their own growth independent of the economic cycle. We continue to maintain low net exposure to the Sage Groups to limit exposure to unpredictable macro risks. The portfolios are well diversified, liquid and positioned to weather the myriad of unknowns.

Read the monthly reports for additional commentary.

* 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.
This information is for wholesale and professional investors only and has been prepared by Sage Capital Pty Ltd ACN 632 839 877 AR No. 001276472 (‘Sage Capital’). Channel Investment Management Limited ACN 163 234 240 AFSL 439007 (‘CIML’) is the responsible entity and issuer of units in the CC Sage Capital Equity Plus Fund ARSN 634 148 913 and the CC Sage Capital Absolute Return Fund ARSN 634 149 287 (collectively ‘the Funds’). Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (‘Channel’) provides investment infrastructure services for Sage Capital and is the holding company of CIML. This information is supplied on the following conditions which are expressly accepted and agreed to by each interested party (‘Recipient’).

This information contains general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. It is intended solely for wholesale clients (including sophisticated investors) as defined under sections 761G and 761GA of the Corporations Act 2001 (Cth).

The information provided should not be considered personal advice, a recommendation, or an offer to invest in the Funds. Recipients should not rely on this information in making investment decisions. A Recipient should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice.

Neither Sage Capital, Channel, CIML or their representatives and respective employees or officers (collectively, ‘the Beneficiaries’) make any representation or warranty, express or implied, as to accuracy, reliability or completeness of this information or subsequently provided to the Recipient or its advisers by any of the Beneficiaries, including, without limitation, any historical financial information, the estimates and projections and any other financial information derived there from, and nothing contained in this information is, or shall be relied upon, as a promise or representation, whether as to the past or the future. All investments contain risk. Past performance is not a reliable indicator of future performance.

For further information and before investing, please read the Product Disclosure Statement and Target Market Determination which is available from www.channelcapital.com.au
SHARE