Thursday 24th March 2022
Portfolios require repositioning post earnings season: Sage
With media news and headlines dominated by the deepening crisis in Ukraine, this year’s interim earnings season was dealt an additional driver. All in all, though, it was a relatively good reporting season, with companies cashed-up and the majority recording a profit, with about 67 per cent of companies lifting profits.
According to specialist equities investment manager, Sage Capital, “From a bottom-up perspective, companies generally reported healthy results, with more beats than misses in earnings versus market expectations, however in many cases cashflows disappointed as companies intentionally built-up inventory levels due to concerns of continued supply-chain issues. Commentary on inflation and higher costs was a common theme, highlighting the importance of pricing power, as were share buyback announcements from companies sitting on excess cash. Russia invading Ukraine drove a large spike in oil and gas prices with investors globally positioned for increased uncertainty.”
The strongest performing Sage “groups” were Gold (+21%), which tends to perform well in times of rising geopolitical risk; Resources, (+5%) driven by energy stocks as the oil price rallied a further 11%; and Yield (+3%), as bond yields continued to rise. The weakest Sage Group was Growth (-4%), driven by the de-rating of expensive and unprofitable companies.
Sage Capital believes it is well-positioned for the inflationary environment that lies ahead. The firm says, “in a short space of time the world has moved from dealing with a global pandemic to high inflation and monetary tightening, which is now being accelerated by Russia’s invasion of Ukraine. For the first time in many decades, central banks have to consider supply constraints in their policy formulations. These constraints are apparent across labour markets with many economies reaching full employment, supply chains and commodities.
“Disruption in Eastern Europe is accelerating inflationary pressures, particularly across the energy complex. This means that policy is likely to be tightened into a slowing growth environment to manage escalating inflationary pressures. This is reminiscent of the stagflation of the 1970s and increases the risk that we are heading into a secular bear market,” adds Sage Capital.
How are Sage Capital’s portfolios positioned?
The investment manager says its “portfolios are well-positioned for this environment with solid exposure across the Resources Sage Group, with energy stocks in particular offering a good risk reward outlook. We have become more concerned with the outlook for consumer discretionary stocks and have taken some profits on financials that have done well with the expectation of rate rises.”
Using a well-diversified positioning to weather the myriad of unknowns, the asset manager is able to minimise risks where possible while benefiting from bottom-up stock selection.
Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.
