Prime Australian Equities Growth SMA – November 2016

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.

DOWNLOAD the Prime Separately Managed Account (SMA) Report, November 2016


Market Summary

November was always likely to be a volatile month. With the US Presidential election occurring in the second week of the month, investors were cautious of a Donald Trump win and the impact this would have on global markets. Surprisingly, the market fear associated with a Trump victory proved to be underserved with global markets rallying significantly in the wake of Trump’s win.

Equity markets were boosted by Trump’s pledge to reinvigorate America through increased infrastructure spending, tighter immigration laws and the reassessment of America’s Free Trade Agreements.

U.S banks rallied hard on the prospect for steeper yield curves and lighter regulation. Australian banks followed suit and rose over +4% on the month.

Energy stocks were the second best performing sector (+3.67%.) Much of this performance came late in the month when OPEC surprised investors by agreeing to a 1.2mbpd production cut aimed at curbing record levels of inventory. Oil rallied 15% intra-month, but was largely unchanged over the period.

Safe-haven sectors such as healthcare and telecommunications were the worst performers. Healthcare was the worst performing sector in November (-1.47%) whilst telecommunications gave up -0.32%.

Bond markets saw significant selling. Australian 10 year bond yields rose from 2.35% to 2.70% on the month.

The US dollar also strengthened as the Protectionist policies of Trump received support from investors. The Australian Dollar fell from 76c to under 75c at month end.

Portfolio Commentary & Positioning

The PRIME Australian Equity GROWTH portfolio was in line with the index during November, gaining 2.87% compared to the ASX200 Accumulation Index which increased 2.99%.

The biggest detractor from performance during the month was Mantra Group Ltd (MTR) which fell -5.47%. There was no significant news to explain the move and we are extremely comfortable with the company outlook. We remain confident that a falling AUD will provide tailwinds for MTR shares.

On the positive side Crown Resorts (CWN) managed to rebound. We remain with no more clarity as to the charges levelled at CWN employees operating in China, but we continue to believe the fundamental value of CWN shares to be significantly higher than current levels. Whilst uncertainty remains CWN shares are unlikely to perform, but we remain confident that measures designed to demonstrate underlying asset values more clearly will ensure higher prices in the medium term.

Fund manager IOOF (IFL) was a strong contributor to the portfolio’s performance during November gaining 6.71%. Speculation that domestic funds group Perpetual might seek to merge with IFL helped its share price, and whilst a long-shot, we do feel IFL is cheap and well positioned to benefit from likely consolidation in domestic wealth management.

Sonic Healthcare (SHL) added 6.39% and benefited from earnings accretion associated with two small pathology acquisitions in Germany. SHL is a favourite of ours and we expect further upside in 2017.

Blackmores (BKL) rose 5.95% recouping losses seen in the previous month. Strong sales from China’s Singles Day retail phenomenon encouraged investors, and we feel strongly that BKL is turning the corner operationally.

Finally, we decided to trim our portfolio exposure to domestic banks and establish a new holding in Macquarie Bank (MQG). Domestic mortgage banks are faced with rising funding costs and a peaking housing market, where MQG should be a major beneficiary of Trump policies supportive of both infrastructure and banking sectors. We believe MQG will outperform local mortgage banks by 20% in the coming 1-2 years.

Transactions for the month

Trade               Stock

REDUCE        Westpac Banking Corporation (WBC)

REDUCE        National Australia Bank Limited (NAB)

REDUCE        Australia and New Zealand Banking Group (ANZ)

BUY                 Macquarie Group Limited (MQG)

WATCH VIDEO: What is a Separately Managed Account (SMA)?

Separately Managed Account (SMA): What is it? from Prime Financial Group on Vimeo.

DOWNLOAD the Prime Separately Managed Account (SMA) Report, November 2016


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.


A unique and personal service approach and support for all your business advisory and personal wealth management needs

Request a consultation

A unique and personal service approach to support all your business advisory and personal wealth management needs.

Request a consultation