Prime SMA Performance Summary – April 2022

The ASX 200 declined 0.9% in April, outperforming the steep falls that beset US equities where the S&P 500 fell 8.7% and the Nasdaq fell 13.2%.

The realisation that financial conditions will need to be aggressively tightened to combat the fastest pace of inflation in several decades prompted a sharp derating in equity prices. The declines were led by falls in Materials, Technology and Discretionary Retail. BHP was the largest single stock detractor. Higher bond yields continued to weigh on technology valuations. Whereas Healthcare, Industrials and Consumer Staples were the strongest sector contributors benefiting from a rotation into defensive companies. 

Health Care was supported by a strong contribution from Ramsay (RHC) that received a $88 per share cash bid by a consortium led by the private equity company KKR. We view the bid for Ramsay as opportunistic given earnings have been depressed throughout the pandemic and are now well placed to recover with an unprecedented post COVID backlog of patients. Ramsay was the largest positive contributor to the portfolio in April. 

Clearly the prospect of tighter central bank policy at a time of weaker global growth has presented a meaningful headwind for equity valuations. The ASX 200 now trades on a 12-month forward PE of ~15 times, its lowest multiple since the beginning of the pandemic in March 2020, and well below its recent peak of ~18 times.  

The 12-month forward ASX 200 dividend yield is ~4.1%, the equal highest in the developed world. Australia’s dividend yield has been supported by the resources sector (namely BHP) benefiting from high commodity prices and strict capital discipline. Overall, dividends have been well supported by continued solid earnings growth by ASX 200 companies. 

Nevertheless, earnings momentum is expected to moderate as financial conditions tighten and companies continue to endure supply chain disruptions and cost pressures.  Indeed, the higher-than-expected March quarter inflation outcome prompted the RBA at its May Board meeting to lift the cash rate target (by+25bps) for the first time in a decade. 

The portfolio remains overweight consumer staples, defensive industrials, and healthcare, sectors that should deliver more resilient earnings against a backdrop of more challenging economic conditions. 

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 30 April 2022

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 30 April 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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