Prime SMA Performance Summary – May 2022

Higher volatility characterised the month of May, with the ASX 200 down 2.6%.

A concerted push by central banks to tighten financial conditions to counter the chilling effects of inflation continued to weigh on equities. The prospect of rising interest rates was particularly damaging to the Real Estate and Technology sectors which fell 8.9% and 8.7% respectively. Materials +0.1% was the only sector to manage a positive return for month.

Commodities were a welcome source of diversification in the portfolio as markets grappled with tightening financial conditions and persistent high inflation. BHP Group (BHP) and Santos (STO) provided an important ballast to the portfolios in a turbulent month. A prolonged period of under investment coupled with ongoing challenge of supply chain disruption as economies reopened has contributed to the sharp rise in commodity prices. 

With a backdrop of rising raw material prices, the portfolios also benefited from exposure to Amcor (AMC) and Brambles (BXB) that had contractual pass-through price mechanisms to absorb higher costs. 

Nevertheless, the portfolios were buffeted by Goodman (GMG), Macquarie (MQG), News Corp (NWS) and Woolworths (WOW) that were impacted by concern of higher interest rates and weaker than expected earnings results from the US bell weather stocks of Amazon, Target, and Walmart.

The healthcare sector recovery in volumes lost during the pandemic continues to face headwinds in Australia, as the impact of Covid/flu has resulted in delays in medical testing and elective surgery. Whilst the delayed backlog for patient care is inevitably weighing on health companies’ results in the short term, the recovery in earnings should be underpinned by the demand for the treatment for chronic disease, catch-up referrals, and an ageing population. Encouragingly, in the US CSL and key industry participants have highlighted that plasma collection volumes (depressed during Covid) are now returning to pre-Covid volumes.

We are seeing the first tangible signs that rising interest rates and high input costs are dampening both earnings momentum (with earnings revisions turning negative) and house prices declining for the first time in the cycle. Amid an economic environment characterised by slowing growth our clear preference is to be invested in companies that offer exposure to consumer staples and defensive industrial sectors. Moreover, in a period of high inflation we continue to hold commodity stocks that are benefiting from elevated prices and offer a hedge against inflation.

Portfolio Performance Figures

Risk Profile Portfolio Performance Figures as at 31 May 2022

Post-Franking Credits

Prime SMA – Model Portfolio Performance Figures as at 31 May 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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