Aug 3, 2015 | Portfolio updates

Prime Australian Equities Income Portfolio – July 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

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.

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.

Portfolio Commentary & Positioning

The PRIME Australian Equity Income portfolio rose 4.79%, in advance of the 4.4% gain made by the ASX200 Accumulation benchmark.

Year-to-date the portfolio is up 8.92%, ahead of the 7.64% gain in the ASX200 Accumulation index.

The portfolio managed to again beat the broader index rise, in spite of a large cash-weighting. We are encouraged with this performance.

Standout single-stock positions in the portfolio during July were Adelaide Brighton Cement (ABC), Wesfarmers (WES) and AGL Energy (AGL).

ABC rose 10% in July, driven by positive comments from its construction material competitor Boral (BLD) as to the current trading environment. ABC is now up almost 40% since it was included in the portfolio, and is perhaps nearing a fair value.

WES rebounded strongly in July also, jumping nearly 9%, whilst AGL also saw a sound 7% rise in July to cap what has been a very strong year-to-date performance.

We took the opportunity during the month to significantly reduce our portfolio position in AGL, given its excellent share price gain and fuller valuation. The stock remains a strong one, and we retain a very modest continued exposure, however we believe it has now reached a more full and fair valuation, meaning we think the upside potential is now diminished.

Westpac (WBC) rose 8.5% and was the pick of the bank sector in July, whilst the recent portfolio addition, Insurance Australia Group (IAG) also strongly outperformed the index rising nearly 6%.

Following the reduction in the portfolio’s AGL position, the PRIME Australia Equities Income portfolio now retains a significant cash weighting in lieu of fresh equity opportunities.

Transactions for the month
Trade               Stock
REDUCE          AGL Energy (AGL)

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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