As at 23 March 2020, the CC Sage Capital Absolute Return Fund has returned +6.98%* month to date and +8.35%* since its inception in 20 August 2019, delivering significant positive returns, uncorrelated with equity markets.

The Goldilocks scenario of growth being neither too hot nor too cold may be a difficult line for the market to tread in 2020, but it’s also unclear what will shift the market significantly in either direction. We look at three stocks to watch in this market.

It’s often said that’s its darkest before the dawn and that certainly applies to markets. Only a few weeks ago bond yields were hitting record lows and the equity market was being driven by defensives and high-quality growth stocks. The economic outlook was deteriorating, there was no end in sight to trade wars and central banks had started to cut rates again. In recent weeks, we’ve seen a sharp rotation to cyclical value stocks and bonds yields have moved higher as the market is seemingly seeing the light at the end of the tunnel. The market often has false starts at turning points so whether this rotation has legs will depend on whether growth recovers.Mid-cycle slowdown or entering a new global recession?

The RBA has cut interest rates to a record low, so is it time to buy cyclicals as growth picks up? Builders, retailers and media stocks often go for a run around rate cuts as expectations of growth pick up, but can fade away again quickly. This is because the RBA is usually cutting rates when growth is weak and if policy isn’t getting traction then growth will continue falling. You may want to consider buying these stocks close to the last rate cut as that’s the one that is usually followed by a strong rebound in activity that drives profits.

For investors seeking to reduce market volatility risk within their portfolio or receive the benefits of enhanced exposure to Australian equities over the medium to long term, Sage Capital's two long/short strategies can help to provide more consistent returns in today's uncertain environment.

After heading in one direction since the beginning of the year the bull market in bonds, which has driven growth and technology shares to lofty heights, is showing a few cracks. Growth is perhaps looking less bad and global yield curves have moved back from their doom heralding inversion.

I’ve come to the realisation that central bankers, rather than being paragons of economic rationalism, are actually human beings. They are subject to the same behavioural biases as the rest of us, and make decisions in this context. One of the more significant biases that affects decision-making is loss aversion. We all experience losses more intensely than gains and will react to the prospect of a loss more intensely than the hope of a win. This partly explains observed patterns in the stock market, which are often subject to rising trends and sharp falls. As markets go lower, investors tend to switch their focus to potential losses, which have greater emotional impact than the prospect of gains, and they head for the exit in a panic.

Sean Fenton, one of Australia’s most experienced Australian equities long/short managers has announced the establishment of Sage Capital – an investment management boutique bringing to life Mr Fenton’s vision for a contemporary and specialised firm, which seeks to generate alpha over the long term through its unique investment approach combining fundamental and quantitative analysis.

Long/short investing allows an investment manager to more efficiently capture the information from their investment process. There are two main advantages to a long/short structure. Firstly, additional returns can be made from shorting stocks that underperform the market. In a long only fund, the ability to outperform by not owning underperforming stocks will be limited by their weight in the index. Secondly, a long/short portfolio can be more diversified than a long only portfolio, avoiding the impact of style bias, while still targeting higher returns.

Having managed Australian equities portfolios for many years on behalf of some very large institutional investors, as well as retail investors, we realised the need for a specialist firm that could solely dedicate itself to generating alpha over the long term by deploying a unique strategy, combining fundamental and quantitative company research. One that could also provide a solution to help lower correlation to equity markets by holding both long and short positions – in a risk controlled way. This has been our vision for some time and the formation of Sage Capital in June 2019.