Prime SMA Performance Summary – October 2021

With the Australian equity market having returned more than 70% since the pandemic lows of March 2020, the recovery in stock prices has begun to show signs of moderation.

For October the ASX 200 finished marginally lower, down 0.1%.

A growing myriad of challenges are weighing on equity markets, including supply chain bottlenecks, energy prices grinding higher, financial deleveraging in China, the persistence of the delta variant, and rising bond yields as central banks begin tightening liquidity conditions. Collectively each of these factors have heighten investor uncertainty.

Yet encouragingly, it is pleasing to observe that the latest AGM and quarterly updates have delivered more positive than negative surprises in terms of current trading conditions and earnings guidance. Despite many companies highlighting supply chain and cost challenges, there have been more upgrades than downgrades to earnings estimates.

At a portfolio level 1Q21 results can be classified as:

Upgrade to earnings – Healius (beneficiary of elevated COVID testing); Goodman Group (lifted FY22 eps guidance to +15%); Macquarie Group (elevated trading & investment income & asset sales); News Corp (stronger than expected digital real estate)

Confirmed guidance – Amcor & Brambles successfully navigated elevated inflation through pass-through cost mechanisms & pricing power. CSL ongoing recovery in plasma collections.

Downgrade to earnings – Westpac disappointing execution on margins and expenses.

The reopening of economies has led to a significant increase in the demand for energy. Global oil demand has rebounded at a time when there is a lack of new supply. The combination of rising demand and shortages in energy supply has ignited prices for both oil and gas. For now, the portfolio retains an investment in Ampol & Santos as both companies benefit from current favourable industry conditions. Yet the sunset for the fossil industry has begun and it is imperative for energy companies to not only lower their carbon emissions but transition to a greener energy footprint.

In summary, there is growing confidence that we are now facing a clearer path to normalization over the summer months with the end of state lockdowns and the reopening of international borders providing further support of a rebound in economic activity. While monetary policy measures may begin to tighten modestly, we expect fiscal stimulus may re-emerge as we head toward a federal election 1H calendar 2022. Overall, with the earnings expansion expected to continue for the remainder of FY22, the portfolio retains its focus on companies that can deliver long term profit and dividend growth.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 October 2021

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 October 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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