Prime SMA Performance Summary – March 2022

Australian equities have outperformed the Rest of World for the second month in a row, driven by strong gains in Resources and Banks.

The ASX 200 rose 6.9% in March, with Australia benefiting from its high commodity exposure and an improved outlook for bank margins.

On face value it seems counter-intuitive that equity prices have rebounded so strongly given an increasingly challenging backdrop of the Ukraine war, rising inflation and central banks tightening monetary policy. Nevertheless, the buoyancy in equities may be explained by several factors.

First, despite the prospect of central banks raising interest rates, in real terms rates remain negative as inflation remains stubbornly high. Equities provide investors some protection against rising inflation, notably evident in commodities/ energy companies and defensive industrial companies that benefit from pass through price mechanisms.

Second, Australian equities continue to deliver strong earnings momentum relative to other global equity markets. Earnings revisions remain positive and the ASX 200 is expected to deliver EPS growth of ~10%+ for FY22.

Third, the ASX 200 dividend yield is ~4.1% and ranks as the equal highest in the developed world. Australia’s dividend yield has been bolstered by high commodity prices with BHP expected to pay more dividends than the 4 big banks in the 12 months to June 2022.  Moreover, the ASX 200 dividend yield is supported by a high payout ratio with Australian corporates paying two-thirds of their earnings in dividends. And finally, balance sheets for ASX 200 remain strong, with Net Debt to EBITDA at ~1 times near two- decade lows.

For March the strongest gains in the portfolios were BHP, Commonwealth Bank/National Australia Bank and Macquarie. Whereas Ampol (divested in March), Brambles and Spark NZ weighed on attribution.

While the rebound in equity prices has been impressive, we remain cognisant that the challenges of the war in Ukraine, ongoing supply chain disruptions, persistent inflation and rising interest rates should temper investor enthusiasm for the rally in risk assets to continue unabated. Indeed, the recent inversion of the US yield curve has prompted concerns about recession risk for the global economy.

At a portfolio level, we are diversified across the major banks, commodities, consumer staples, healthcare, and telecommunications sectors. Within these sectors we favour exposure to the industry leaders (namely, BHP, Cleanaway, CSL, & Woolworths) companies that have historically delivered more dependable earnings and dividends and remain well anchored with conservative balance sheets.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 March 2022

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 March 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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