Mar 10, 2015 | Portfolio updates

Prime Australian Equities Income 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 Income portfolio rose 6.35% and modestly underperformed the ASX200 Accumulation index rise of 6.89%.

The portfolio’s lack of exposure to Resources cost it this month not surprisingly, as the Materials sector jumped 11.7% and was the notable ASX200 sector performer. The two worst performing sectors also happened to be Telecoms and Consumer Staples, both of which the fund is reasonably exposed to by virtue of its weighting to Telstra (TLS), Woolworths (WOW) and Wesfarmers (WES). That the fund only lagged by 0.50% we feel is actually a reasonable job, and we are hopeful of seeing the underperformance recouped in the months ahead perhaps as the miners pull back.

Fortunately, the fund saw excellent performance from its one ‘industrial’ bet, with Adelaide Brighton Cement (ABC) rising 20% in the month after an excellent set of profit figures. We have liked ABC for reasons of its asset base, its subtle AUD leverage, its not-so-subtle housing and construction leverage and its strong balance sheet, and we were rewarded. The stock looks set for further gains in 2015 we feel, and we are happy to hold it for now despite the share price surge.

IOOF (IFL) was also an excellent performer, delivering a 12% rise in the month. By virtue of its strong gains since adding to the portfolio, IFL is now the second largest weight in the portfolio and is a name that perhaps we might consider reducing in the weeks and months ahead. We will see.

We made no changes to the portfolio in the month, but are thankful we redeployed cash into the banking sector when we had it free several months ago.

We believe there are a few interesting income opportunities emerging, so would expect there to be gradual change to the portfolio in the months to come.

Transactions for the month

Trade               Stock

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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