Prime Australian Equities Growth Portfolio – July 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 by selecting primarily those securities with moderate growth potential but robust cash-generating capacity. These securities are expected to deliver an above-market average income yield, together with a relatively moderate level of capital growth. The portfolio benchmark is the S&P/ASX200 Accumulation Index.

Market Summary

In contrast to the heavy selling seen the previous month, the ASX200 Accumulation rebounded 4.40% in July to recoup a significant amount of the June losses.

Greece was very much the trigger for the market gains, as the EU and Greek government resolved an eleventh hour agreement that allowed the indebted nation to access additional funds ahead of a wider debt restructuring.

Both the Australian Dollar and local bond market also offered support for equity players – 10-year government bond yields fell from 3% to 2.75%, whilst the AUD also fell from 77c to 73c.

The falling AUD helped health-care stocks outperform, and both CSL (CSL) and RESMED (RMD) eclipsed the market. Consumer staples were also strong, and both Wesfarmers (WES) and Woolworths (WOW) bounced hard.

Commodity stocks were again the laggards, and miners indeed fell 1% in the month against the broader market strength. Oil shares were barely flat, and held back by the 20% fall in the oil price during July.

There was little to remark upon insofar as the local economy was concerned. The next major catalyst for shares will prove to be the full-year earnings season, set to commence in early August.

Portfolio Commentary & Positioning

The PRIME Australian Equities Growth portfolio rose 5.23% in July, outperforming the ASX200 Accumulation’s 4.40% gain.

Year-to-date the portfolio is up 12.06%, well ahead of the 7.64% gain in the ASX200 Accumulation index.

Performance for the portfolio during July was strong, and in contrast to the notably weaker market of June. We were encouraged by the outperformance, which was achieved in spite of near-maximum cash holdings.

Particular winners for the portfolio during July were Crown Resorts (CWN) which rose 12%, RESMED (RMD) +10%, Westpac (WBC) +8.5% and AGL Energy (AGL) +7%.

CWN bounced well as reports from Macau seemed to point towards an easing in regulatory pressure on the local casino industry there.

RMD posted an excellent set of quarterly profits late in the month, that saw the stock jump strongly.

On AGL, the continued market enthusiasm for the share allowed us to significantly reduce our weighting to the share, taking advantage of a near 20% gain (and relative outperformance) in the stock since it was added to portfolios in September 2014.

Commodity stocks and sectors again lagged the broader index, and fortunately the portfolio had retained a minimal exposure to the major miners and to the oil sector ex-Woodside (WPL). BHP was the only portfolio holding to fall in July, easing by 2%.

During the quarter we chose to raise our energy sector weights, by adding Oil Search (OSH) to the portfolio, and alongside Australia’s energy major Woodside (WPL). We felt much of the markets concern for oil prices had been reflected in the OSH share price, and that we were now able to buy OSH with a more limited downside risk relative to its still significant upside reward potential afforded by exploration drilling and the likely expansion of its PNG LNG operations. OSH was funded by a reduction in our AGL position.

The portfolio retains a significant cash weighting, and will continue to do so until more obvious value emerges in the broader Australian equity market.

Transactions for the month

Trade               Stock
SELL                South-32 (S32)
REDUCE          AGL Energy (AGL)
BUY                  Oil Search (OSH)

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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