Prime SMA Performance Summary – August 2021

The August reporting season delivered impressive earnings and dividend growth of ~30% for the ASX 200.

The uplift in earnings was led by the Resources (iron ore producers) and the Banks (Commonwealth Bank). The major Resource Companies (BHP) bolstered by elevated commodity prices generated strong free cashflow that delivered material upgrades in dividends. Disciplined capital allocation has also supported mining sector balance sheets to be in pristine shape.

A buoyant housing market supported a return to credit growth for the banks and coupled with “unquestionably strong” balance sheets, enabled the banks to announce $10bn of buybacks. The banks reporting season also confirmed a more benign environment for net interest margins (NIM) despite the pressure of record low interest rates and rising competition.

Overall, the strong upgrade cycle in earnings supported large capital management initiatives, with at least $18bn of buybacks and capital returns announced, including special dividends. Further buybacks are expected to be announced by the banks and diversified industrial companies over FY22. Nevertheless, the expectation for a robust earnings season had been well anticipated by the market as results broadly met analyst forecasts. Significantly the reporting season was more revealing about the headwinds emerging for companies in FY22, suggesting that earnings momentum had now peaked, with net earnings revisions turning negative in August.

Trading updates for the first 8 weeks for FY22 highlighted the negative impact that prolonged lockdowns on the eastern seaboard were having on company revenues. As a result of the lockdowns in NWS and Victoria, several companies indicated revenue monthly declines of >10% in the new financial year. Some additional companies did not provide guidance, citing heightened uncertainty caused by the persistence of the delta virus. The trajectory in earnings revisions could also be impacted by weakness in iron-ore prices driven by a decline in steel production in China.

The PRIME Australian Equity Growth portfolio finished the month of August up 1.46% (1.56% inclusive of franking credits) compared to the ASX 200 Accumulation Index up 2.50%. Positive contribution for the portfolio was driven by CSL Limited (CSL), Westpac (WBC), and Woolworths (WOW). Whereas BHP Group (BHP), Santos (STO) and News Corp (NWS) weighed on attribution.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 August 2021

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 August 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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