Prime SMA Performance Summary – September 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

Australasian equity markets were weaker in September in contrast to American and European markets which were predominantly stronger.

Despite ongoing political tensions between the US and North Korea, US Q2 GDP data exceeded expectations and growth in employment numbers continued to highlight a strengthening in its economy.

The Federal Reserve left interest rates on hold and reaffirmed the winding back of its balance sheet would commence next month.

Commodity prices weakened during September, most notably iron ore down 20%. High inventories and a strengthening USD saw iron ore fall to yearly lows at $61.50/tonne.

Oil prices soared to their highest level in two years after major producers said production cuts were finally leading to a squeezing in supplies. Improving global growth has led to an increase in the demand for energy, whilst damages to US shale from Tropical Storm Harvey could also further drive prices.

Major contributors in portfolio’s for September were Macquarie Group (MQG) which rose nearly 5%. MQG guided towards its FY18 result being broadly in line with FY17 numbers and highlighted a strong 1H18 result which was well received by the market.

Mantra Group (MTR) bounced nearly 7% as speculation surrounding a potential takeover continued to spread in the media.

Blackmores (BKL) reported solid growth in its Q4 sales numbers. Cash conversion numbers were up 20% on the prior year and demonstrate strong underlying demand and a continued turnaround in its excess inventory issues which have negatively impacted the business for the past year.

On the negative front Healthscope (HSO) struggled to claw back any of its losses from the previous month, and in fact fell a further 4%. Despite this, we remain confident HSO shares can in the medium term deliver and look to the opening of its Northern Beaches hospital in 2018 as a catalyst for this.

Telstra (TLS) was down 5% as the fallout from a cut to its dividend saw yield-seeking investors sell down holdings. TLS fell to five year lows as news emerged that NBN Co was refusing to support its proposal to monetise its future payments from the broadband network. We continue to hold TLS believing its true value remains closer to $4.

Our Australian equity growth and diversified income portfolios both beat the market in September. The defensive portfolio was in line and the international portfolio underperformed its 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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