In this Q&A, we step inside the mind of Peter Moore, Ph.D., Portfolio Manager at Sage Capital. Within the investment team, Peter is responsible for quantitative models, risk systems and oversight of trading.

Can you share your journey into investment management and how your academic background influences your role at Sage Capital?

I have an academic background in mathematics and applied physics. After returning from Europe where I did my PhD and worked in academia, I found my skillset – mathematics, coding and managing large data sets - in demand in finance.

My first role was at Boronia Capital where I started out managing data sets before being shifted into research, where I worked on the main quantitative trading models across Futures and FX. Following that, I ran a macro fund alongside Chris Daily at Tribeca Investment Partners, with a focus on equity alpha models, portfolio risk frameworks, and equity trading. During my time at Tribeca, I also worked with Sean Fenton on the quantitative models supporting the fund he managed. I’ve brought these areas of expertise to my role at Sage Capital, where I continue to apply and refine these capabilities across our investment strategies.

How does Sage Capital's investment process differentiate itself in the Australian equities landscape?

At Sage Capital, we’ve applied a few lessons we’ve learned, in an investment framework that helps us sleep at night by mitigating the largest systemic risks in the portfolio.

This framework is really the key to everything – governing how we control risk and how we think about stock selection. Essentially, we group stocks and take long and short positions within groups that eliminate 90% of the macro risk from the portfolios and inform which strategies we apply to those stocks. Our long short approach lets us achieve the dual aim of constructing diversified portfolios with meaningful tracking error. In a long-only approach, these dual aims can only be achieved through a material net underweight across the largest stocks, which is a significant distortion by itself.

Can you elaborate on the structure and objectives of your long short strategies?

We manage two long short strategies:

• CC Sage Capital Equity Plus Fund: This fund is an active alternative to investing in the index, and aims to outperform the S&P/ASX 200 Accumulation Index over the long term. By investing in both long and short positions, we can express both positive and negative views of large and smaller companies.
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• CC Sage Capital Absolute Return Fund: This fund aims to outperform the RBA cash rate over time, with minimal exposure to the market direction. By offsetting long positions with short positions, the fund can profit from stocks moving up or down.

Both funds take many active positions (more than 100),without any one position being too large. We spread our active bets across both large and small stocks across both growth and value stocks and across different economic drivers – cyclicals, defensives etc.

How do you manage risk within these strategies, especially during volatile market conditions?

We manage the risk of deviation from the benchmark for both strategies in the same way (this is called tracking error). For the CC Sage Capital Equity Plus Fund, we always provide exposure to the underlying equity market, and aim to outperform the index over the long term.

The CC Sage Capital Absolute Return Fund offers an investment solution that is generally uncorrelated to broader equity markets and is designed to generate positive returns even during bear markets.

The fund has as much risk invested in negative direction bets as positive direction bets, providing exposure to alpha without directional market risk. Alpha is expressed as positive and negative bets within macro sectors that tend to balance each other, so we’re not caught by market reversals. The strategy is supported by a proprietary quantitative model that adds incremental alpha and applies a risk management framework.

What trends are you currently observing in the Australian equities market, and how are you positioning your portfolios in response?

The market appears quite expensive relative to history, with more speculative stocks in the index and greater multiples paid for some larger stocks that are perceived to have higher quality – Commonwealth Bank being a prime example. Super funds and passive investments via ETFs are taking a higher share of market flow, which is driving longer cycles of single-stock valuation disconnects, before any eventual correction. There appears to be more thematic investment driving correlations within sectors higher, perhaps from niche thematic ETFs and large multi-strategy macro funds.

Some broader disconnects are developing – where resources appear cheap on recession risk, but banks and retail stocks are ignoring those same recession risks. Gold stocks are very popular right now, driven by the high gold price. This is paradoxically a negative read on investor sentiment, with gold providing no yield but being attractive to investors who have lost faith in bonds and equities as primary investments.

We’ve seen a tendency for new IPOs to price aggressively and some companies with almost non-existent businesses seeing big share price changes until they enter the S&P/ASX 200 index where they attract greater scrutiny.

We think it makes sense to position against the most extreme valuations where they aren’t driven by fundamentals. We see gold as an attractive area to apply company insights, where stocks tend to be bought less discriminately following Gold ETFs.  We are constructive on base metals like copper and aluminium, and on a relative basis negative on banks and the more expensive retail stocks.

What are you looking for in an investment idea? Does it differ for longs and shorts?

Long positions are ideally longer term, short positions, short term! A good long term stock to own has some way to maintain its profit margins which in most industries are competed away over time. It generally has good business momentum and a valuation that makes sense.

We take short positions in concept stocks, stocks with poor business momentum and unrealistic market prospects of a turn-around, and extremely over-valued stocks that are otherwise sound businesses.

Do you have different time horizons or holding periods for longs versus shorts?

Yes, certainly. Long and short positions are not symmetrical. A short position makes you a profit as the dollar value of the position falls, a long position makes you a profit as the dollar value of the position rises. A good short position “closes itself”, quickly in the best-case scenario, while a good long position can be held for a long time, with some selling to keep the position manageable and take profits along the way.

Why do people use liquid alternative strategies like this one?

Some investors are risk-averse, some are diversifying a broader portfolio, and some are just trying to avoid a market blow-up. We’ve also seen some investors try to time the market, tactically shifting allocations into market neutral when the market appears fragile, and investing in our strategies when the market is dominated by bullish sentiment.

How do you maintain a work-life balance in the high pressure world of asset management?

I try to switch off a bit after hours and avoid checking the market too much in the evening when we can’t act on it anyway. Family dominates this time.

What hobbies or activities do you engage in outside of work to unwind and recharge?

I play a very amount of touch football, typically 3 – 5 sessions a week.

If you could work remotely from any location in the world, where would it be and why?

On a 40ft sailing boat underway at an undisclosed location off the coast of Italy (where my wife is from and where we were married) using a Starlink satellite connection. One can dream, right?