Prime SMA Performance Summary – April 2018

Portfolio Objective

To achieve capital growth with moderate tax-effective income via franked dividends through investment in listed Australian securities.

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.

Portfolio Commentary & Positioning

There was wide dispersion across global equity markets in April – the US was flat while European equity markets posted 6% gains.

US equities underperformed but posted marginal gains (+0.25%) as concerns around trade protectionism and continued volatility impacted the market. Strong economic data was offset by the potential for faster rate hikes as inflation increased to 1-year highs of 2.40%.

US bond yields rose again rounding out April at 2.95% having climbed through 3% intra-month as geopolitical tensions saw investors rotate capital out of equities and into bonds.

Domestically, the ASX200 Accumulation index was strong, recouping all of its prior month’s losses to post a 3.91% gain.

Much of this performance was on the strength of energy stocks (+10.7%) and miners (7.6%) as oil rallied 7% for the second consecutive month on production cutbacks. This suited PRIME’s Equity Growth SMA which is overweight the sector.

The ongoing Royal Commission into the misconduct of the Australian financial services sector brought the banks unstuck as unscrupulous lending practices and incentivised product upselling saw investors abandon the banks, which was unsurprisingly the worst performing sector (+0.14%.)

The AUD fell 2% to trade just above 75c, however this was a function of USD strength more than anything else with the USD rising against a basket of currencies.

The primary contributors to portfolios in April were Healthscope (HSO) +25% which received a takeover bid from BGH Capital at $2.36. We believe a deal will eventuate at $2.50 or more so remain patient in anticipation of this outcome. Oil Search (OSH) bounced 10% on account of the oil price strength despite falling revenues and cuts in production numbers following the earthquake in PNG. Downer (DOW) rose 7% as speculation that it is looking at selling its mining division emerged.

On the flip side IOOF (IFL) and Pendal Group (PDL) were both weak falling -12% and -9% respectively. Both stocks came under selling pressure as a result of the Royal Commission and the testimony from AMP that raised major concerns over vertical integration in financial services.

All portfolios were moderate underperformers during April with the exception of the Defensive SMA which was 0.22% ahead of its respective benchmark. Our portfolio performance however across all risk profiles remains well ahead of the benchmark on a one to five year view. We were active across three out of the four portfolios during the month buying new positions in Afterpay Touch (APT), MHOR Australian Small Cap Fund and the recently IPO’d L1 Capital (LSF) and we took profit in APN Outdoor (APO.) The Diversified Income SMA established a new position in APA Group (APA) and the Defensive Income SMA took up our Metrics rights (MXT) by way of the entitlement offer.

AS AT 30 APRIL 2018
 1 Mth3 Mths6 Mths1 Yr2 Year (PA)*3 Year (PA)*
High Growth2.33%0.92%3.81%9.13%10.84%7.48%
*Annualised return. Portfolio inception date 03/07/2012
AS AT 30 APRIL 2018
 1 Mth3 Mths6 Mths1 Y2 Year (PA)*3 Year (PA)*5 Year (PA)*
Prime Australian Equity Growth SMA3.44%1.09%3.57%7.15%9.26%4.45%8.48%
Prime Australian Defensive Income SMA
* Annualised return. Portfolio inception date 03/07/2012
Prime Diversified Income SMA0.26%-2.66%-1.31%
Prime International Growth SMA2.30%0.50%4.06%12.44%14.26%
*Annualised return. Portfolio inception date 18/02/2016

What is a Separately Managed Account (SMA)?

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

Disclaimer: This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

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