Prime SMA Performance Summary – December 2018

Prime SMA Performance Summary – December 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

Global equity markets recorded heavy losses in December with the MSCI World Index falling -7.6%.

Trade tensions between the world’s two largest economies, the withdrawal of liquidity from financial markets, geopolitical issues such as Brexit and rising interest rates led to stock markets suffering their worst calendar year of performance since the GFC.

The US equity market underperformed falling 9% and the Federal Reserve increased interest rates 0.25% as forecast. However, a change in the Federal Reserve’s stance on monetary policy suggests fewer rate rises in 2019.

Volatility was the overriding theme in December with the VIX (Volatility Index) climbing back to its February highs. US bonds pointed further towards investor caution as bond yields fell to near 12-month lows below 2.70%.

The plunge in crude oil prices continued in December with WTI and Brent oil falling a further 10% and 8.5% as OPEC agreed to reduce supply by 1.2m barrels per day. Oil fell more than -20% for the calendar year on account of oversupply fears.

The AUD/USD fell 3.5% in December and nearly 10% for the year as concerns over the impact a US-China trade war may have on Australia saw the currency fall to 70c.

Locally, the Australian equity market outperformed with the ASX200 Accumulation Index essentially flat in December.

Miners were the best performing sector rising 5% as iron ore likewise bounced 10% to trade $71/tonne. Sector weakness was felt across telcos -5%, IT stocks -4% and financials -3%.

Downer (DOW) was the shining light in December rising 7% to reverse some prior month’s weakness. DOW now trades on a 12.5x FY20 PE with a dividend yield in excess of 5% and remains a core holding. We view DOWs road services, transport infrastructure and rail services divisions as likely beneficiaries of a boost to infrastructure spending and a potential sale of its mining services division may pave the way for a capital return to investors.

Detractors from performance were IOOF (IFL) and BWX (BWX) which fell 25% and 50% respectively. IFLs share price has lagged on account of the Royal Commission throughout 2018 but a show cause notice alleging breaches of the Superannuation Industry Act and the disqualification of five senior executives saw investors sell down holdings. We anticipate a new CEO to be duly appointed in time and maintain the acquisition of the ANZ wealth business will continue. IFL remains a hold.

Weakness in BWXs domestic export sales to China and softer sales in its flagship Sukin branded products saw BWX release its second downgrade to earnings numbers in six weeks. In our view the selloff has been overdone with shares now trading on <9x FY20 earnings numbers. It is disappointing but we believe momentum will turn in Sukin products and that the downgrade is seasonal and not systemic.

Activity across the SMAs was relatively subdued in December. The Growth and Diversified Income SMAs went unchanged. The Defensive Income SMA reduced MXT and added the Artesian Corporate Bond Fund which invests in liquid, investment grade fixed and floating rate corporate bonds. The International Growth SMA reduced MGG and added to existing weights in the Platinum Asia and Orbis Global Equity funds. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

 1 Month3 Months6 Months1 Year2 Year (PA)*3 Year (PA)*5 Year (PA)*
High Growth-3.36%-8.40%-4.39%-1.51%5.63%5.43%7.56%
*Annualised return. Portfolio inception date 03/07/2012
 1 Month3 Months6 Months1 Year2 Year (PA)*3 Year (PA)*5 Year (PA)*
Prime Australian Equity Growth SMA-6.78%-13.76%-8.31%-5.50%2.70%3.59%6.13%
Prime Australian Defensive Income SMA
* Annualised return. Portfolio inception date 03/07/2012
Prime Diversified Income SMA-3.19%-6.58%-4.32%-5.21%
Prime International Growth SMA-2.23%-8.85%-4.55%-1.34%7.83%
*Annualised return. Portfolio inception date 18/02/2016

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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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