Prime SMA Performance Summary – Mar 2021

Equity markets made it to the end of March demonstrating bulletproof resilience. The opening months of the year have not provided anything like the scale of the “once in a century” pandemic shock that global economies faced in the same period in 2020.

We have just passed the 1-year anniversary for the trough in global equity markets. The event-based pandemic led to one of the sharpest contractions and rebound in equity markets.

What is clear that the magnitude and breadth of the response by government and central banks combined “firepower” of fiscal and monetary policy measures successfully inoculated economies from the worst effects of the lockdowns. Combined with the successful discovery of a COVID-19 vaccine the result has been that consensus estimates for the global economy and earnings have consistently under-estimated the speed and magnitude of recovery.

Whilst the foundations of a broad economic recovery continue to provide ballast to an earnings and dividend uplift such as the banks and resource sectors, our attention has shifted to allocating new capital to quality companies that have lagged the recent sharp rally in equity prices. Notably, we see investment opportunities in stocks that have markedly underperformed in the latest part of the rally.

Nonetheless, with equity prices elevated at levels well above long term averages we need to be conscious there are several factors that could pose a challenge to risk assets. Specifically, there are growing signs that the vaccine rollout in Australia and across many countries are facing unforeseen complications around efficacy and delays to distribution potentially delaying a full recovery in economic activity.

Caution is also warranted over the historic level of liquidity and stimulus being used to support growth with the risk that economies become overheated fueling the need for higher interest rates to curb excess activity. Yet for now, the only thing that matters to asset prices is fiscal & monetary policy largesse.

From an equity market perspective current valuation (12-month forward PE for the ASX 200 ~18.5x) the economic recovery is now largely priced into the ASX 200 following a ~50% rise in equity prices from trough in March 2020. Indeed, the market is now adequately reflecting the earnings recovery and upside will be more limited from here.

Our preference remains with Quality and Value, where our attention is now focused at stocks that have lagged. Offshore earners we favour at current levels include Brambles (BXB) and CSL (CSL) whilst stocks we believe are well leveraged to a reopening and recovery include Ampol (ALD) and Ramsay Healthcare (RHC).

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 March 2021

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 March 2021

Post-Franking Credits

About the Portfolio

Portfolio Objective
To achieve capital growth with moderate tax-effective income via franked dividends through investment in listed Australian securities.

Model Portfolio
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.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.


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