Prime SMA Performance Summary – December 2021

The elements that have supported the buoyancy of equity prices in 2021 are expected to fade in 2022.

The intoxicating combination of unrivalled fiscal and monetary stimulus and the benefits of the re-opening of economies have driven up the price of ‘just about everything.’ As we move into a new year, it does appear that central banks are now looking to curtail the liquidity stimulus, as inflation accelerates, and policy makers consider an earlier timetable for shrinking bond purchases (tapering) and potentially raising interest rates.

While a key support mechanism for asset prices is set to tighten (albeit modestly) earnings for the ASX 200 are still expected to grow in 2022, though at a slower pace than 2021. 

M&A activity in the healthcare sector was elevated in December with the core portfolio stocks of CSL, Healius, and Ramsay Health Care announcing acquisitions. Each of the acquisitions underline opportunities for the healthcare sector beyond the disruptions of COVID-19 and provide a constructive backdrop for the long-term treatment of chronic health conditions.

CSL announced plans to acquire Vifor Pharma for an equity value of US$11.7bn. The transaction provides exposure to the renal disease market where the prevalence of chronic kidney disease (CKD) is expected to growth at ~8% per annum. Vifor’s product portfolio is complimentary to CSL’s existing R&D pipeline in cardiovascular disease. The transaction is also expected to be EPS accretive in the first full year of CSL ownership, including US$75m of synergies to be achieved over 3 years.

Ramsay Health Care announced that it intends to acquire Elysium Healthcare for A$1.4bn, a UK operator of hospitals and care homes for individuals with mental health conditions. The acquisition provides Ramsay exposure to the UK Mental Health market estimated to be worth £15.2bn with the UK government committed to increase funding for mental health diagnosis. The company expects the acquisition to be mid-single digit EPS accretive in FY23.

Amid the persistence of the Covid-19 virus and at a time when central banks are actively looking to unwind ultra-accommodative policy settings, we do expect earnings growth and market valuations to moderate. In an environment of slower, but still positive growth in profits, a focus on dividend yield should become a more prominent consideration for investors. Against this backdrop, an emphasis on earnings quality, dividend sustainability and conservatively positioned balance sheets remains imperative.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 December 2021

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 December 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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