Prime SMA Performance Summary – October 2017

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

Equity markets were stronger locally and abroad in October, with the Australian equity market posting its highest monthly gain for the calendar year.

The US equity market was exceptionally strong, buoyed by the possibility of tax reform under President Trump. Technology led the way in October rising 7.6% as powerhouse stocks Facebook, Apple, Google and Microsoft all reported strong earnings.

In commodity markets, iron ore fell 5% as high inventories continue to put downward pressure on demand.

Oil prices continued to climb higher closing at two and a half year highs above $60/barrel. OPECs agreement to curb production continues to see a squeeze on supplies which is supporting the oil price. We continue to see upside in the oil price, particularly if production cuts extend beyond next March’s deadline.

The AUD was weaker in October as new home sales and private sector credit growth both disappointed. A slowdown in Chinese manufacturing also put pressure on the AUD.

Major contributors to the portfolio’s for October were Blackmores Limited (BKL) which rose 35%. Q1 trading results showed ongoing strength in direct sales into China (+28%) with net sales up 9%. We took profit in BKL on account of this strength.

Mantra Group (MTR) rose 22% as a takeover bid from French hotel chain Accor finally emerged. We booked our profits at $3.90 rather than waiting for the takeover to play out over many months.

Healthscope (HSO) recovered from a disappointing 3 months to add 17% in October. Despite acknowledging softer private hospital market conditions at its AGM, we remain confident the opening of its Northern Beaches hospital in 2018 will add significant value in the medium term.

All four of our SMAs beat the market in October with the Equity Growth and Diversified Income SMAs outperforming by more than 1%. Early success from participation in MXT, VG1 and MGG IPOs supported the International and Defensive Income portfolios as well.

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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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