Performance and market insight - October 2020

Market Insight
November 17, 2020

With multiple significant global influences at play as we discuss below, we continue to manage risk tightly in order to avoid sector and style bias with the aim of minimising systematic risk in the portfolio and ensuring returns are achieved through stock selection.

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 0.61% after fees, outperforming the RBA Cash Rate by 0.60% during the month. Over 1 year, the Absolute Return Fund has returned 14.11% (net of fees), outperforming it’s benchmark by 13.74%. Since inception the Absolute Return Fund has returned 11.63% p.a. (net of fees) and outperformed its benchmark by 11.18% p.a.*

As an active extension strategy that aims to always retain exposure to equity markets, the CC Sage Capital Equity Plus Fund returned 2.26% after fees, outperforming the S&P/ASX200 Accumulation Index by 0.33% during the month. Over 1 year, the Equity Plus Fund has returned -0.02% (net of fees) outperforming it’s benchmark by 8.13%. Since inception the Equity Plus Fund has returned 2.44% p.a. (net of fees) and outperformed its benchmark by 7.17% p.a.*

Market review

In October, the S&P/ASX 200 Accumulation Index rose by 1.9%, outperforming major markets in the Northern Hemisphere. While Australia looks to have COVID-19 largely under control, October saw cases in Europe and the UK continue to rise rapidly resulting in full or partial mobility restrictions in France, Germany, Italy and Spain. The US also continued to see a rise. Fears of the economic impact of a second wave and US election uncertainty weighed on global markets with the S&P 500 Index down 2.8% and MSCI World ex-Australia down 3.2%.

In Australia, consumer confidence and business conditions continued to improve in October with the Federal Government delivering a budget which was well received, with larger than expected fiscal stimulus including acceleration in tax cuts, incentives for businesses to hire and invest as well as an acceleration in infrastructure spending and housing incentives.

Portfolio positioning

We see a markedly increased chance of having a successful COVID-19 vaccine candidate by the end of 2020. The structure of the phase 3 trial designs of many candidates have them doing an interim analysis for efficacy when a certain number of symptomatic coronavirus cases are hit. The increasing infection rates in the US and other parts of the world means that the longer it takes to reach these thresholds, the higher the likely efficacy of the vaccine. The fact that we haven’t had any trials report interim data before the US election, increases the likelihood that when they do report they will show strong efficacy. A promising vaccine candidate can possibly take the place of fiscal stimulus. A quicker end to social distancing will help lift employment and spending and should drive a steepening in the yield curve and a rotation to value. There are a range of stocks that will do well from this normalisation, with those linked to travel and leisure expenditure receiving the biggest lift. Conversely, the boom in online retailing and expenditure on homewares may flatten out, although we expect to see a strong Christmas trading period for many retailers.

Another interesting dynamic shaping our market is the increasing trade tension between China and Australia. China has either halted imports or is examining tariffs on a range of goods from coal and wine to barley and lobsters. Escalation here could have implications for Australia’s post-COVID-19 recovery if it extends to Chinese students and tourists. We see risks around stocks exposed to Chinese exports and the daigou channel.

>View our September update

* Past performance is not an indicative of future performance. The inception date of the CC Sage Capital Absolute Return Fund and the CC Sage Capital Equity Plus Fund is 20 August 2019.