If the holy grail of investing lies in the concept of non-correlated return streams with which to build truly diversified portfolios, insurance-linked securities (ILS) should emerge as one of the options for investors; but they are still not well-understood. That was the message that John Wells, co-founder and chairman of London-based Leadenhall Capital Partners, had for The Inside Network’s recent Alternatives Symposium.
Gold’s spectacular rise has been a feature of the markets over the last couple of years, and judging from how the investment banks are sharpening the pencil on their price targets, that trend seems likely to continue, as gold’s ‘NETGO factor’ intensifies.
Three stocks that delivered for Sage Capital in December
Most fund managers would probably prefer smooth sailing in their first 18 months of operation, not a global pandemic and the most volatile period for equity markets in recent history. But Sean Fenton of Sage Capital, which is backed by the growing Channel Capital group, welcomed the volatility.
The fund, which started in August 2019 after Fenton exited his long-standing role as portfolio manager of the Tribeca Alpha Plus Fund, managed to deliver 7.2% in outperformance over 2020, and is now ahead 10.3 per cent to 3.8% for its benchmark since inception. The ‘Equity Plus’ or ‘Active Extension Fund’ seeks to deliver positive returns and outperformance by using both long and short positions.
Fenton and the Sage Capital team aim to reinvest the proceeds of their short positions in core long positions and avoid the mistakes of many of their competitors, who tend to use their ability to short to dampen market volatility rather than back-in their best ideas. The group is quickly gaining a track record and with it capital flows, with stock selection core to its returns.
An important contributor to performance in December was a long position in debt collection agency Credit Corp (ASX: CCP) which rallied 25 per cent after the immediately accretive acquisition of the debt ledgers of Collection House (ASX: CLH) which has experienced a tumultuous few years. Management highlighted the transaction as evidence of CCP’s “superior position within the domestic market with clean accounts and a strong balance sheet,” calling it vindication of one of Sage’s earliest high-conviction ideas.
A short position in Webjet (ASX: WEB), which fell 12 per cent, also contributed to outperformance. Initiated due to the fact that its “enterprise value had rebounded far in excess of its recovery potential,” the trade was clearly well-timed, but also acted as a hedge against the long position in Flight Centre (ASX: FLT). The group also benefited from a short position in global equity manager Magellan Financial Group (ASX: MFG) which fell 9% after weaker-than-normal fund performance.
In a sign of the unique diversification offered by the strategy, the fund holds a short position in Fortescue Metals Group (ASX: FMG) to offset overweight long positions in BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO). While this did not pay off in December, the weaker iron ore price in January has hit FMG the hardest.
