Prime SMA Performance Summary – May 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 climbed higher in May with the MSCI World Index rallying 0.5%.

Increased volatility in European markets spiked as Italy’s political instability drove the EuroStoxx 50 lower, however the strength of the US (S&P500 +2.2%) underpinned the wider MSCI Index.

Emerging markets lagged once again with the MSCI EM Index falling -3.8%, driven lower by the strength of the US dollar.

Locally, the ASX200 Accumulation Index rose 1.09% supported by healthcare (+5.6%) and REITs (+3.1%.) REITs were stronger as bond yields fell from an intramonth high of 2.93% to 2.67%

Sector weakness was felt across Telcos which fell -10% as Telstra cited increased competition in the mobile space as the reason it expected EBITDA to come in at the bottom end of its guided range.

The RBA left rates on hold as an overleveraged housing market, ongoing declines in auction clearances rates and weak wage growth data (+0.5%) from Q1 continues to stifle inflation.

Oil was mixed – Brent Crude rose 4% whilst WTI fell 2% despite a clear price reversal towards the end of the month following OPECs indication it would intervene and stem the production gap left by Iran.

Major contributors to portfolios in May were Afterpay Touch (APT) which rose +30% after partnering with Urban Outfitters Inc. to expand its product offering in the US. APT continues to remain a core position in our portfolio. Oil Search (OSH) +5.5% was strong, supported by rising oil prices and Macquarie Group (MQG) continues to add significant value rising +5% and trading ex-dividend, as it reported an FY18 net profit figure +15% on the prior year.

Detractors from performance were Telstra (TLS) -12% which continues to struggle as competition places increased pressure on fixed and mobile margins. Healthscope (HSO) -3.3% was weaker as the board announced it had decided not to grant due diligence to either BGH – AustralianSuper or Brookfield. We continue to hold HSO and believe we will be rewarded with a bid that values shares around the $2.50 level.

The Growth SMA was modestly ahead in May while the Diversified Income, Defensive Income and International SMAs underperformed slightly. Portfolio performance across the High Growth, Growth, Balanced and Moderate investor risk profiles continues to beat the benchmark on a 5-year view which we are pleased with. We added to Vocus Group (VOC) in the Growth SMA, traded a small position out of APA Group (APA) into IOOF (IFL) in the Diversified Income SMA and swapped our holding in the Vanguard International Shares Index with the Nanuk New World Fund – a long only, environmentally sustainable listed equities fund.

AS AT 31 MAY 2018
 1 Mth3 Mths6 Mths1 Yr2 Year (PA)*3 Year (PA)*
High Growth0.40%1.46%2.74%8.86%9.75%5.77%
*Annualised return. Portfolio inception date 03/07/2012


AS AT 31 MAY 2018
 1 Mth3 Mths6 Mths1 Y2 Year (PA)*3 Year (PA)*5 Year (PA)*
Prime Australian Equity Growth SMA1.14%1.89%4.51%9.81%9.56%4.46%9.90%
Prime Australian Defensive Income SMA
* Annualised return. Portfolio inception date 03/07/2012
Prime Diversified Income SMA-0.35%-2.74%-1.67%2.41%
Prime International Growth SMA-0.23%0.93%1.04%9.12%11.24%
*Annualised return. Portfolio inception date 18/02/2016



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