Prime Australian Equities Income SMA – January 2017

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.

DOWNLOAD the Prime Separately Managed Account (SMA) Report, January 2017


Market Summary

January was an interesting month, with the inauguration of the US president likely to be the catalyst for global markets performance. Surprisingly it was primarily non-economic policy reform that caused investor optimism to wane. A lack of clarity on fiscal spending ensured our market was one of the worst performing markets.

Having outperformed the US market the month prior, the Australian share market underperformed in January. The best performing sector was health care (+4.76%) which reversed 6 months of underperformance to outperform the broader market. Miners (+4.74%) were also strong and continued to bounce on account of price rises in coal and iron ore.

Lagging the index, industrials and consumer discretionary stocks both rolled in excess of 4%. Meanwhile banks were also exceptionally weak in the latter half of the month with the Big 4 all posting losses between 4.5% – 8% having traded at 12 month highs in the middle of the month.

Inflation data (1.5%) continues to operate below the RBAs target band (2-3%) and coupled with negative growth figures and poor wage growth, points towards a subdued Australian economy in the short to medium term.

The AUD strengthened against all of its major trading partners in January with the exception of New Zealand. The AUD rallied 5.4% against the USD, however this was more a case of the USD facing increased weakness following uncertainty around Trump’s investment policies.

The portfolios were impacted in January as Regis Healthcare (-4.59%) and Sonic Healthcare (-2.71%) underperformed. Additionally, our lack of exposure to resources hindered performance. However, we remain concerned over Chinese demand for steel going forward so we are not considering establishing new positions here. We continue to sit on large cash weights and remain ready to act as the impending reporting seasons presents some opportunities.

Portfolio Commentary & Positioning

The PRIME Australian Equity INCOME portfolio also underperformed in January falling -1.31% relative to the ASX200 Accumulation Index which fell -0.79%

The worst performer was Mantra Group (MTR) which fell 12% in January. There was no material information to account for this fall, rather an overselling in one of those “market darling” stocks. Despite the increasing number of shares short-sold (7%) we continue to feel extremely confident with the nature of the business and the management team and note the resorts business in particular seems to be exceptionally strong.

Regis Healthcare (REG) had a strong start to the new year but weakened over the later stages of the month to post a 4.6% decline in January. Confusion over cuts to Aged Care Funding Instruments (ACFI) continue to negatively impact REG. Given no official announcements have yet been made, we remain shareholders for the time being while we wait to hear more.

Blackmores (BKL) regained virtually all of the previous month’s underperformance. Much of the destocking issues that had impacted BKLs performance now seem to have been laid to rest.

AGL Energy (AGL) rose 2.30% in January on account of rising electricity prices and the renegotiation of a 4 year electricity deal with Alcoa. AGL continued its dominant run trading at all-time highs in January.

Woolworths Ltd (WOW) was another pleasing performer adding 2.07% in January and validating its large position in our portfolios. Suggestions that WOW won market share during the Christmas period from Coles further demonstrates that the WOW turnaround story is definitely in full swing. We are convinced WOWs success story has further to play out and would be looking for $28 before considering taking some profit.

Transactions for the month

Trade               Stock

ADD                 Mantra Group Ltd (MTR)

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DOWNLOAD the Prime Separately Managed Account (SMA) Report, January 2017


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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