Prime SMA Performance Summary – February 2022

The rapid escalation in geopolitical risks has triggered a sharp rise in volatility for global equity markets.

Yet against this backdrop, the ASX 200 rose 2.1% in February with the Energy, Materials and Banking sectors adding the most value. Whereas value was lost in the healthcare, technology, and telecommunications sectors. Notably, Value stocks continued to outperform relative to Growth stocks as investors remained focused on the persistence of inflationary pressures and the prospect of tighter financial conditions. 

In the face of the headwinds of Covid-19 lockdowns and supply chain disruptions, the February 2022 reporting season delivered positive earnings momentum. Overall, there were net earnings upgrades to ASX 200 profits of 0.9% or $1.3bn, the second strongest result since the global financial crisis.  

The key themes of the February 2022 reporting period were: 

  • The ASX 200 delivered a solid reporting scorecard. Earnings momentum continued delivering EPS upgrades above the long-term average. Net earnings upgrades of 0.9% equates to ASX 200 profits for FY22 to be in the vicinity of $141bn. 
  • Earnings momentum favoured Cyclical and Value stocks. The uplift in earnings were largest across the Banks, Energy and Material sectors. Whereas the high P/E sectors of Healthcare and Technology broadly disappointed. For Healthcare, 2 years of postponement of non-Covid healthcare weighed on results. 
  • Cost pressures. Strong revenue growth was offset by persistent cost pressures resulting in modest compression of EBITDA margins, with industrial companies most affected. 
  • Capital Allocation Discipline. Despite buoyant revenue growth, investment spending (capex) intentions remain modest. Firms continue to favour buybacks, and M&A. Capital returns were the second highest in the past decade. 
  • Balance sheets remain conservatively geared. ASX 200 companies Net Debt/EBITDA of ~1.2x is close to 20- year lows, with rising interest rates not yet translating to higher interest costs. 
  • Commodities tight supply constraints. The potential for sanctions on Russian exports across key commodities (energy, grains, metals) while global inventories are already extremely tight has pushed commodity prices higher and resulted in boycotts by commodity traders unwilling to be exposed to Russian export cargoes, especially in crude oil. 

Currently there are many sources of risk that investors are contending with. The tragic events unfolding in Ukraine have introduced further unknowable challenges and risks to the global economy. Nevertheless, Australia’s tyranny of distance to the epicenter of Europe and its abundance of natural resources in agriculture, energy, and minerals provide a solid footing for the continued growth of the economy and corporate earnings. Amid the volatility, our equity portfolios remain steadfastly focused on holding Quality industry leaders underpinned by strong balance sheets.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 28 February 2022

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 28 February 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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