Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Travel, discretionary retailers, energy tipped to lead company earnings
As we draw closer to Christmas, the market is expected to focus on individual company earnings to drive stock selection and share prices. According to Sage Capital, the travel sector remains robust and consumer spending on services, dining and discretionary items is expected to remain strong. Energy stocks are tipped to rise while iron ore stocks are expected to fall.
With investor confidence returning to markets, Sage Capital’s October update highlighted a slew of positive trading updates that are yet to witness higher interest rates impacting consumer spending. As a result, markets remain mixed.
Sage Capital’s chief investment officer, Sean Fenton, recently characterised the market as “very tricky”.
“Probably because it’s a very macro-driven market as well,” Fenton said on Ausbiz. “Whilst there’s a lot of things happening with different companies, everything’s been overwhelmed by what we’re seeing around the world in terms of inflation and responses by central banks to try and get that under control.”
According to the monthly update, October was a strong month for equity markets with the S&P/ASX 200 Accumulation Index rebounding 6.04 per cent. The best-performing sectors were REITs, global cyclicals and domestic cyclicals, and the weakest being resources.
“Global cyclicals strength was driven by travel stocks and general improvement in sentiment globally. Domestic cyclicals were driven by Qantas, which announced a sizeable profit upgrade and strength across discretionary retailers on the back of positive trading updates at AGMs,” the update stated.
“Resources was relatively weak driven by the large, listed iron ore exposed companies (BHP, Rio Tinto, Fortescue Metals Group) as the iron ore price fell amid a new round of Covid-19 lockdowns in China and an ongoing property slump.”
Markets rallied after the RBA and the Bank of Canada both increased interest rates less than expected, but was later disappointed after the Federal Reserve indicated that a recession may be required to tame inflation.
“So, ranging from what the US Federal Reserve is doing in terms of hiking interest rates and attempting to cool the economy so inflation is back to what Japan is doing sitting on its hands and hoping it will all go away,” Fenton said.
“That has created a very interesting backdrop for investors, where bonds yields are grinding higher pressuring valuations and we are looking down the barrel of a recession as central banks try to get that under control. So, a big impact on earnings.”
According to the report, Sage is bullish energy and bearish iron ore whilst remaining focused on individual company earnings to drive share price appreciation.
“We remain positive on energy stocks and cautious on iron ore. We believe there are numerous factors supportive of the oil price near term including OPEC production cuts, an end to US Strategic Petroleum Reserve releases after the mid-term elections, the EU sanctions on the import of Russian crude oil and an eventual end to Covid-19 lockdowns in China boosting demand,” the report pointed out.
“While focusing on individual company earnings to drive stock selection. The portfolios are as always well diversified, liquid and positioned to weather the myriad of unknowns.”
