Prime SMA Performance Summary – January 2022

The ASX 200 declined more than 6% in January, its worst start to the year since 2008. 

Since the nadir of equity prices in March 2020, risk assets have been driven higher by an abundance of liquidity and stimulus. Global economies have flourished, and corporate earnings have rebounded supporting record equity prices. 

Yet the ‘whatever it takes’ policy response combined with the idiosyncratic nature of the pandemic dislocating supply chains has ushered in an era of structural imbalances prompting inflation to rise to its highest levels in decades. 

The fear that inflation may not be under control has led to a sharp pivot by central banks acknowledging they are now ‘behind the curve’. The prospect that interest rates and bond yields will rise and there will be less of a stimulus impulse saw global equity markets decline sharply in January.

The sell-off in equity markets highlighted the vulnerability of highly valued companies (growth stocks) but also sectors, such as healthcare, where the provision of services has been disrupted by the omicron variant. 

At a portfolio level, value was a clear outperformer in January. The outperformance was driven by gains in energy and material stocks, with BHP and Santos the standout contributors. Whereas, declines were most evident in consumer staples and healthcare, with CSL/Healius and Wesfarmers weighing on performance.

We contend that higher bond yields and the wide valuation dispersion that still exists between growth and value will continue to weigh on the most expensive stocks. However, we remain sanguine that healthcare sector should show signs of recovery as the impact of the omicron virus fades and the backlog of treating patients resumes.  

Moreover, the recent de-rating in the consumer staples stocks impacted by significant disruptions in supply chains from the Omicron variant are now appearing to ease. Higher food inflation should also support both earnings and the PE ratios of supermarkets.

For 2022, equity markets face the dual headwind of tightening financial conditions and slowing earnings momentum. The sell-off in global equity markets in January reflected these concerns. Indeed, we expect further volatility in the coming months as investors adjust to a new paradigm. Nonetheless, global economies continue to enjoy strong growth and corporate earnings are expected to trend higher again in 2022, albeit at a more moderate level. Our portfolios are focused on ‘Quality Companies’ with strong balance sheets that remain well placed to deliver dependable dividends to our investors.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 January 2022

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 January 2022

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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