For the month of July, the Sage Capital portfolios remained relatively neutral across the Sage Groups^ allowing the portfolios to be well insulated from unexpected systematic macro risks while benefiting from stock selection.
The CC Sage Capital Absolute Return Fund delivered a net return of 0.69%* and the CC Sage Capital Equity Plus Fund delivered a net return of 1.48%*, outperforming their respective benchmarks by 0.69% and 0.38% for the month of July.
The S&P/ASX 200 Accumulation Index finished up 1.10% in July. The strongest performing Sage Group was Resources (7%) as commodity prices, such as lithium, continued to surge on electric vehicle demand while the bulks producers are expected to pay large dividends with the strong iron ore price. Gold (+3%) and Defensives (+3%) were also strong as real interest rates moved further into negative territory on the back of continued central bank bond buying. The weakest Sage Groups were Growth (-2%) which was hit by some profit taking and Yield (-1%) which was held back by lower interest rates and future investment returns. The Sage Capital investment team focus on managing portfolios to minimise exposure to style rotations and unexpected macro events with the aim to deliver consistent returns driven by stock selection.
Economic re-opening is generally pushing ahead globally despite the increased prevalence of the Covid-19 Delta strain. Higher vaccination rates globally are proving effective at limiting hospitalisations and deaths which has allowed this momentum to continue. This stronger growth outlook is not being reflected in the bond market though, which has continued to rally with yields falling back towards lows despite significant upside inflation surprises. The message from central banks including the US Federal Reserve is that inflation will prove transitory and that they are prepared to be quite patient to allow it to come back down. This has helped to keep markets calm and allowed equities to continue pushing to new highs. This supportive environment is likely to continue until central banks begin to “taper” their bond purchases.
The earnings outlook remains very positive. The strong demand backdrop from fiscal and monetary support and economic re-opening is combining with pricing power to drive strong profits for many companies. The inflationary pressures from higher commodity prices and supply chain disruptions are generally benefitting companies who have been able to pass on price rises to other businesses and consumers and expand margins. The danger is that these expectations and behaviours become embedded.
On the domestic front, Australia continues to experience snap lockdowns and border closures with Sydney likely facing an extended hiatus. The silver lining is that it has created a new urgency around vaccinations which should allow for a more complete return to normal next year. Given the experience of previous lockdowns and some of the fiscal support available, the market seems content to look through any short-term economic impacts.
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