Apr 7, 2015 | Portfolio updates

Prime Australian Equities Growth Portfolio – March 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 was nigh on flat in March, falling only 0.06% on the month. The index rose 10.33% in the quarter, making it one of the best periods of stock-market performance in 5 years.

The month was a largely quiet one locally, and reflected some reversion of recent performance. The standout was the retracement of miners and oil during March, with both major sectors falling 6%. Offsetting this, banks rose 1%+ and healthcare also led, assisted by ongoing Australian dollar weakness.

In a macro sense, the main standout on the month was the ongoing strength in the US dollar. European markets took great comfort from the falling Euro, the commencement of European Quantitative Easing policies, and of the seeming cooling in overt animosity between the Greek and German law-makers.

Oil continued to fall as US supplies escalated to near full capacity. Iron ore fell a staggering 20% again this month.

The Federal Reserve met and were deemed to suggest that though a rate hike was likely mid-year, it was not pre-ordained. This helped bond markets rally, and so as we end the month Australian bonds are at or near record low yield levels of 1.71% for 3-year bonds and 2.33% for 10-year bonds. This level of bond yields is hugely supportive of equity markets near term.

The RBA did not cut rates in March, preferring to hold fire, however interest-rate markets and ourselves are overwhelmingly in favour of a likely 0.25% rate cut at the next bank meeting after Easter. It is our view that this will likely be the end of Australian rate cuts for now, however the market is far more optimistic and sees one and perhaps two more rate cuts in the coming 12 months, an optimism I expect will prove undeserved.

Lastly, takeover activity was a notable feature of the ASX during March. The best performing stocks were those involved in M&A action, as TPG (TPM) & iiNet (IIN) led all-comers rising 25% and 35% respectively. PanAust (PNA) rose 31% after receiving a bid from its major-shareholder, the Chinese backed Guandong Rising Asset Management. As the Australian dollar weakness becomes more ingrained in corporate management psyche’s, the prospect of further inbound M&A for Australian assets becomes a real possibility.

Portfolio Commentary & Positioning

The PRIME Australian Equities Growth portfolio rose 0.69% in the month, outperforming the broader index indifference (ASX200 Accumulation -0.06%). On the quarter, the portfolio rose 15.15%, again outperforming the benchmark rise of 10.33%.

Like its sister portfolio the PRIME Australian Equity Income portfolio, the outperformance this month was as much to do with what it didn’t own as anything else. The underweight in miners was helpful to performance, as was the large position held in RESMED (RMD), which rose 13%.

Our recently added position in Carsales.com (CAR) was sound, and outperformed by 3% or so. We saw company management this month, and feel really encouraged about where this company is going on a 2 year view.

Most of our other major industrial bets pulled back in the month. Most notable was Crown Resorts (CWN) which fell 13% unwinding the strength seen earlier in the year. But similarly, positions held in each of IOOF (IFL) and Flight Centre (FLT) both dragged a shade, and the underweight but still not immaterial position in BHP (BHP, -8%) was another headwind.

Again, we made no changes to the portfolio in the month. As always, opportunity exists in various sectors, but timing is key. The Australian energy sector has one or two opportunities emerging where quality assets are looking interesting for those willing to look beyond the current oil glut, however it is key that we avoid those companies burdened by debt and by unfortunately high cost bases.

Transactions for the month
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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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