Prime SMA Performance Summary – July 2021

The Australian equity market continues to be bolstered by a stronger than expected recovery in company profits, with the ASX 200 on track to deliver earnings growth of ~25% for the 2021 financial year

The profits recovery has been dominated by the banks and iron ore producers. At a portfolio perspective, we expect that the market leaders of BHP and Commonwealth Bank deliver a meaningful uplift in earnings and dividends and further underpin ongoing capital management.

Nevertheless, the degree of uncertainty remains elevated due to the more virulent Delta strain and the ongoing persistence of lockdowns affecting much of eastern Australia. Undoubtedly the magnitude of the lockdowns, particularly in NSW (~25% of GDP) is expected to slow economic and profit momentum in the September quarter.

The pathway to a reacceleration of economic activity is dependent on Australia’s success in vaccinating at least 70% of the eligible population by the end of the December quarter. To date, higher levels of vaccinated populations in the US and UK are illustrative of the importance in restoring economic momentum.

However, the level of uncertainty posed by the pandemic has underlined the importance of owning stocks that are industry leaders in the defensive sectors of consumer and industrial staples (Brambles, Wesfarmers, Woolworths) and healthcare sectors (CSL, Healius). We firmly believe that the attributes of earnings resilience and strong balance sheets remain valuable characteristics of the portfolio in delivering high quality earnings and dividends to our investors.

While earnings momentum is expected to slow in the coming quarter, earnings growth is still expected to be in the vicinity of ~10% for FY22, supported by accommodative policy settings and the expectation that higher vaccine rates will ultimately lead to profit momentum returning. As such, the portfolio also holds stocks that should benefit from a reopening in the economy namely in the energy sector (Ampol, Santos) and industrials sector (Cleanaway, Qube).

Overall, the continued expansion of earnings for the ASX 200 is a key factor in supporting dividend per share momentum. The ASX 200 remains an attractive destination for income seeking investors, with the 12-month forward dividend yield at ~3.9%, the third highest in the world, supported by a dividend pay-out ratio of ~70%.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 July 2021

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 July 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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