Insights

Monthly Performance and Market Update - April 2020

Market Insight
May 14, 2020

Equity market rebound short lived

As equity markets experienced a rebound in April, it was short lived as the volatility quickly made its way back reflecting uncertainty in corporate earnings and the outlook for many companies. Pleasingly, both strategies continued to outperform their benchmark returns via high success rates across relative stock selection in a risk-controlled manner.

As a market neutral strategy that aims to provide an uncorrelated source of returns whilst eliminating equity market exposure, the CC Sage Capital Absolute Return Fund returned a positive 1.84% after fees, outperforming the RBA Cash Rate by 1.83% during April.*

Similarly, as an active extension strategy that aims to always retain exposure to equity markets, the CC Sage Capital Equity Plus Fund returned 9.35% after fees, outperforming the S&P/ASX200 Accumulation Index by 0.57% during April.*

Markets carried their momentum from the end of March, rallying strongly in April. The S&P/ASX 200 Accumulation Index was up 8.78% and has bounced 21.51% off its lows in March. The market optimism was triggered by signs that new COVID-19 infections were peaking in several countries including Australia, as well as strong fiscal and monetary responses. This led many to believe that the shock from the pandemic would follow the trajectory of normal natural disasters with a sharp contraction followed by a swift recovery. Investors reduced equity risk premiums and began pricing stocks on a post COVID-19 basis. Considering this sentiment, it was no surprise that the sectors hit hardest in March bounced strongly in April.

The market has been infected by optimism recently as it surged back from its mid-March lows. This reflects the financial and economic stability provided by massive central bank liquidity support and significant fiscal support from governments. There has also been significant progress in slowing COVID-19 infection rates across many countries which has prompted the start of some easing in lockdown restrictions.

Looking at the composition of the equity market rally provides a less bullish picture. Much of the rebound has been driven by Technology and other growth and defensive stocks returning to near highs, while there has been some rebound in oversold Cyclicals. Banks on the other hand, have barely moved from their lows. We find this a concerning signal as the banks represent the engine house of the economy and have the greatest leverage to poor outcomes. This indicates that the market is still very worried about the economic outlook, but cheap money is helping to lift valuations across the market.

Portfolio Positioning

With so many possible economic and financial outcomes, we are looking to keep thematic risk tightly constrained, although with the strong bounce in markets, we have taken profits in several of the more cyclical and leveraged names that we bought for a rebound.

The investment team’s focus remains on companies who can grow earnings through this turbulent environment. We have retained exposure to Healthcare, Telecommunications and Consumer Staples, as well as select financial and technology companies. We are underweight major resource companies, preferring exposure within the mining services space. We are generally avoiding companies with excessive financial leverage or cyclical exposure and certainly the combination of both. We are also holding a long gold position.  We like gold as a financial asset and a diversifier when central banks are printing money into weak economic activity.

>View the Performance of our funds here

* Past performance is not an indicative of future performance.
This information is for professional and wholesale 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
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