Prime SMA Performance Summary – June 2019

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 rebounded strongly in June with the MSCI World Index rising 6.6%.

US central bank dovishness and a dovish turn by the ECB drove equity markets higher.

The US outperformed as a slowdown in economic data led the Federal Reserve to announce a strong bias for easing in the medium term. The market is currently pricing in four rate cuts in the next 12 months.

European equity markets were similarly boosted as weak inflationary data drove the ECB to announce possible rate cuts and a return of QE.

The ASX200 Accumulation index added 3.7% in June and has now climbed higher every month this calendar year.

The disconnect between equities and bonds continued with US 10-year Treasury notes falling below 2% whilst Australian 10-year government bonds tightened 13bps yielding an all-time low of 1.32%.

The weaker USD assisted Emerging Markets with China, Korea, Brazil and Hong Kong equities all advancing.

Oil recovered from the previous month’s selloff as sanctions from the US on Iranian oil continue to drive supply and demand. WTI rallied 9% to trade $58 a barrel while Brent oil bounced nearly 5% to trade $64.

Iron ore climbed higher for the eighth consecutive month adding 4% to trade US$121/tonne. Supply side issues from both Brazil and Australia and rising demand from China and other emerging markets continue to boost the iron ore price.

Contributors to performance in June were BWX (BWX) and Telstra (TLS) which added 10% and 5.5% respectively. BWX traded higher on news UK investment firm Taloman Capital had become a substantial shareholder. We take comfort in this and the consolidation of BWXs share registry and continue to think the shares are worth more. TLS continued to benefit from the ACCCs decision to block the TPG and Vodafone merger, however we feel at these levels is starting to look fully priced.

Detractors from performance were Challenger (CGF) and Regis (REG) which fell 18% and 13%. CGF hosted an investor day and revised guidance to somewhere in the range of $545m-$565m. The current low interest rate environment is impacting CGF returns and whilst disappointed with the announcement, we remain confident CGF will benefit significantly in the longer term from the government’s Retirement Income Framework. REG downgraded its FY20 estimates and we also suspect some tax loss selling prior to EOFY was another reason for its weakness. REG pays a dividend of over 5% and we would look for shares to recover somewhat before considering selling them.

We were very active in the portfolios during June. We exited our position in Qube (QUB) and reduced our weight in TLS. We added to Pendal (PDL), Downer (DOW), Challenger (CGF) and BWX and established a new position in Reliance Worldwide (RWC) which we think has significant upside and now trades at a 2-year low. The Diversified Income SMA reduced some of its TLS and added to PDL, DOW and CGF. The Defensive Income SMA topped up existing holdings Artesian, Pimco and Ardea while the International SMA took up our VG1 rights and bought into the VGI IPO. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

As at 30 June 2019
Pre-Franking Credits

As at 30 June 2019
Pre-Franking Credits

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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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