Prime SMA Performance Summary – February 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.

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Portfolio Commentary & Positioning

Global equity markets were weaker in February with US and European share markets falling ~4%, whilst Asian markets lost closer to 6%.

The Australian share market sold off in the first half of the month but rallied heavily in the back half, with the ASX200 Accumulation index beating its major global competitors to post a 0.36% gain.

Volatility was the overriding theme in February. Increased fears over the pace at which the US Federal Reserve were likely to hike rates saw investors sell down equity holdings.

US bond yields rose to 2.86% and the VIX (Volatility Index) climbed to two-year highs as wage growth and inflation prints came in ahead of forecasts. Ironically, despite the Feds long-term objective to see increases in both areas, it was the rate of this growth that spooked investors.

Iron ore rallied 10% to trade $80/tonne – it’s highest level in 10 months, while oil prices fell ~5% on account of increases in US Shale production.

Locally, reporting season came and went and was largely viewed as a “fair” reporting season.

Healthcare was the best performing sector adding 7%. Energy (-4.5%) and telcos (-7.7%) were the main detractors to portfolios. Much of the weakness in telcos was a result of Telstra (TLS) which makes up 72% of the index going ex-dividend on the last day of the month.

Contributors to portfolios in February were felt across Regis Healthcare (REG) +5% and Seek (SEK) +3.4%. REG posted revenue gains of 4% despite cutbacks to residential aged care funding in the past 12 months while SEK upgraded EBITDA guidance following a strong result in its core Australia and NZ business.

Major detractors from performance were Woodside Petroleum (WPL) -11% which announced a surprise $2.5b equity raising to fund the acquisition in the Scarborough gas field.

Telstra (TLS) was also weaker (-8.7%) having been impacted by delays in the rollout of the NBN and the write-down of $273m across its US video business Ooyala. It did however trade ex-dividend in February 11c.

Prime’s Growth SMA added IOOF (IFL) following the recent acquisition of ANZs wealth business. It also took profit in Woolworths (WOW) believing much of its outperformance over rival Coles was now fully reflected in the share price. The Diversified Income SMA made similar changes and also exited its Wesfarmers (WES) position on account of stagnation across its Coles division and potential future write-downs of its Bunnings UK business. The Defensive SMA saw a number of hybrid holdings go ex-dividend but was otherwise unchanged, while the International SMA trimmed 5% of its holding in the Vanguard International Shares Index and performed in line with the benchmark.

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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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