May 4, 2015 | Portfolio updates

Prime Australian Equities Income Porftolio – April 2015

Portfolio Objective

To generate a grossed-up dividend yield at least equal to the one-year bank deposit rate and capital value targeted to grow at least in line with CPI.

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

The ASX200 Accumulation index fell by 1.7% in April, but is still 8.45% higher year-to-date. The pullback should be no surprise since the March quarter rise represented the best period for Australian stocks since 2009, and some profit-taking seemed inevitable.

The month was characterised by widespread reversion to the significant trends of 2015 with bond yields selling off globally and currency moves reversing. In an Australian context, the local currency jumped from 76c to 79c and the decision by the RBA ‘not’ to cut interest rates to 2% early in April saw the local interest-rate market sell-off significantly – bank bills went from expecting almost 3 0.25% rate cuts, to now expecting just over 1.

Australian banks fell by over 4%, and underperformed the mining sector by over 6% in a reversal of the longer-term trend.

Oil and iron ore prices rebounded from major lows, helping to lead the resources sector higher.

Chinese equities surged ahead in the month, rising a further 15% after a cut to bank reserve requirements, an easing in property regulation and a move to replenish capital within several of the major developmental finance apparatus of the state.

Portfolio Commentary and Positioning

The PRIME Australian Equities Growth portfolio fell 2.34% in April, and underperformed its ASX200 Accumulation benchmark by 0.64%.

Year-to-date the portfolio is up by 8.53% and just ahead of the benchmark’s 8.45% rise.

As an income-focussed portfolio, the rise in bond yields during the month had an unsurprisingly material drag on the bulk of stocks held.

The Australian bank sector fell by over 4% in the month, whilst the oil and resources sectors rallied – the energy sector was up 8.5% in fact. The portfolio’s only resources holding is Woodside (WPL), meaning that it missed out in large part the areas of the market to outperform.

Fortunately, the recent underperformance of both Wesfarmers (WES) and Woolworths (WOW) reversed and both shares were flat against the market. AGL Energy (AGL) and Adelaide Brighton (ABC) also performed well by holding steady in a down month.

There were no changes to the portfolio again this month. We continue to believe Australian interest-rates will remain low for a protracted period of time, which means income-sensitive shares should retain a bid to them. Banks clearly make up a reasonable portion of the portfolio, however we have not taken a particularly active bet in the sector for much of the last 6 months as we felt that though absolute valuations looked full, relative valuations were still ok.

The more the market shakes out, the more there will be increasing opportunity to pick up some steady earnings streams at reliable valuations. Patience will be a virtue for this portfolio, and we continue to strive for this.

Transactions for the month

Trade               Stock
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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.

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