Performance summary

The CC Sage Capital Absolute Return Fund returned 2.23%* in February and the CC Sage Capital Equity Plus Fund returned -1.48%* versus the S&P/ASX 200 Accumulation Index return of -2.45%.

The S&P/ASX 200 Accumulation Index finished down -2.45% in February with both the US Fed and the RBA raising rates a further 0.25% as inflationary pressures continued, and bond yields steadily rose. Company reporting season featured a higher than normal number of earnings misses and beats demonstrating the high degree of forecasting uncertainty across the market, and outlook statements that were generally cautious. Major themes included uncertainty around future demand for consumer and housing exposed companies and wage inflation, where the focus has shifted from labour availability to labour cost.

The strongest Sage Groups^ were Global Cyclicals and Defensives with the weakest being Gold and Resources. Global Cyclicals was driven by Flight Centre (ASX: FLT +20%) which gave an upbeat outlook statement and announced an acquisition and capital raising that was well received by the market. Defensives was driven in large part by Medibank Private (ASX: MPL +14%) whose result indicated that churn has stabilised and customer growth has returned post the cyber attacks on its business. Weakness in Gold was driven by a stronger US dollar and rising real yields, and Resources fell as a result of lower commodity prices across the board on the back of a stronger US dollar and softer demand from China.

Portfolio positioning and outlook

We expect interest rates both in Australia and the US to continue to rise as inflation is not yet tamed and labour markets remain stubbornly resilient. A key variable for the trajectory of interest rates and equity markets globally remains labour market data out of the US including job openings, payrolls and hourly pay. Broadly, we believe equity market valuations are not fully reflecting higher real yields and also appear to be factoring in a soft landing scenario. History has shown that macroeconomic policy is a blunt tool which makes it difficult to engineer a soft landing making a recession a more likely outcome.

In Australia, data continues to indicate that consumer spending remains solid, though this is being aided by declines in the savings rate and we expect the full impact of recent interest rate hikes to be increasingly felt later this year. We remain cautious on companies directly exposed to discretionary consumer spending and lower house prices, however we believe travel is a category that could prove to be more resilient due to pent up demand from the pandemic. Overall, we continue to prefer companies with resilient earnings streams and pricing power in industries such as healthcare, insurance and telecommunications. We are cautious on banks as aggressive competition for deposits is becoming evident as fixed-rate mortgages roll off which will reduce margins going forward.

We continue to focus on individual company earnings to drive stock selection and maintain low net exposure to the Sage Groups to limit exposure to unpredictable macro risks. The portfolios are as always, well diversified, liquid and positioned to weather the myriad of unknowns.

Read the monthly reports for additional commentary.

• ‍CC Sage Capital Absolute Return Fund monthly report
• CC Sage Capital Equity Plus Fund monthly report

* 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.