Prime Australian Equities Growth Portfolio – February 2015

Portfolio Objective

To achieve capital growth with moderate tax-effective income via franked dividends through investment in listed Australian securities.

The Model Portfolio is managed in line with Prime’s investment principles of long-term investment in high quality securities. The bottom-up approach focuses on business fundamentals, seeking businesses with strong balance sheets, structural competitive advantages, and purchasing them with the requisite dividend yield and growth prospects. The portfolio benchmark is the S&P/ASX200 Accumulation Index.

Market Summary

The ASX200 Accumulation Index rose 6.89% in February, making it the best monthly gain since October 2011.

Miners led the market rise, jumping nearly 12% after both BHP (BHP) and Rio Tinto (RIO) posted solid cost performance in their half-yearly profits, and in the case of RIO, delivered a well-received share-buyback.

The RBA cut cash rates by 0.25% to 2.25% and are widely seen to cut again in the months ahead. This helped markets, and domestic consumer confidence, the latter well and truly off the lows seen back in May 2014 post the Federal Budget. Consumer discretionary shares outperformed the market on this increased optimism, catching many investors off-guard.

Reporting season was the main focus for markets, and though unspectacular seemed to receive a pass-mark. Banks trading statements were notable in the lack of upgrades, whilst miners were notable for the cost-cutting. This perhaps could be a cause for concern since you don’t ordinarily buy mining shares for cost-cuts, nor do banks look particularly great value up here without ongoing earnings momentum.

Portfolio Commentary & Positioning

The PRIME Australian Equities  Growth portfolio rose 7.68% and outperformed the ASX200 Accumulation index rise of 6.89%.

This month was a particularly satisfying month for the portfolio for two reasons.

Firstly, the return was the best monthly return on record, eclipsing the January 2015 figure of 6.09%.

Secondly, that the portfolio was able to better the indexes best monthly return in over 3 years is also highly encouraging.

Our shift towards domestic Australian leverage proved a worthy decision as the performance of both Flight Centre (FLT) up 10% and Crown Resorts (CWN) up 12% were two of the standout positions in the month. In the case of CWN, an exceptional end to the year in its domestic Melbourne casino was a huge positive for the share price and elicited 10%+ upgrades from analysts. FLT was similarly spectacular, jumping over 10% on the day of results after it confirmed that domestic Australian activity was showing tentative recovery signs.

IOOF (IFL) was also a tremendous performer for the portfolio, rising 12% in the month, and delivering solid profit performance in its half-yearly results released late in February. IFL has been buoyed by rising stock-markets and the early success of its Shadforth’s acquisition. The stock is now a fairer value, and we remain watchful as to opportunities to take profit here.

In the portfolio this month we completed the sale of our position in Magellan Financial Group (MFG), believing that business to now more than fairly reflect the recent success it has had in raising capital. It is a great business, but much of the recent success has been on the institutional side, which attracts lesser fees. Further, we feel the market is slowly moving away from ‘AUD-exposed’ names, and looking more intently at domestic Australian industrials in light of the recent RBA rate cut. We also removed our position in SAI Global (SAI) after its recent bounce back.

We added positions in Computershare (CPU) and (CAR) in the month. CPU is a name we have had success with in the past, and we were fortunate to time our buying well on the day of results. The stock was an outperformer on the month rising 11% from our point of purchase, and we believe it still offers excellent value for the medium-term. is a new name to us, but we believe in a relative sense looks good value and has good leverage to improving domestic advertising and also to the burgeoning opportunities in Korea and Brazil where CAR have partnered with local groups to provide online auto marketplaces.

The portfolio remains underweight in materials, and this cost us some performance in the month, however we see little reason to change that view for now and remain solely weighted to BHP (BHP). RESMED (RMD) and Woodside (WPL) dragged on portfolio performance, however in the case of both we expect each to re-emerge as strong contributors to the portfolio in the months ahead, particularly RMD.

Transactions for the month

 ReduceMagellan Financial Group
 ReduceSAI Global

Disclaimer: This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.


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