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.

RISK PROFILE PERFORMANCE FIGURES
As at 30 June 2019
Pre-Franking Credits

SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
As at 30 June 2019
Pre-Franking Credits


What is a Separately Managed Account (SMA)?

 

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

 

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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Prime SMA Performance Summary – May 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

An unexpected breakdown in US/China trade talks saw global equity markets suffer their worst month this calendar year. Investors dumped equities in favour of safe haven assets such as government bonds and raised cash. The MSCI World Index fell -4.27% in AUD.

Global bonds rallied with US 10-year Treasury yielding 2.13% whilst Australian 10-year government bonds tightened 33bps yielding an all-time low of 1.45%.

US (-6.5%) and Chinese (-5.8%) equity markets drove global share markets lower. China’s reported backpedalling on trade terms was met with the Trump Administration’s decision to increase tariffs on US$200b of Chinese imports from 10% to 25%. An Executive Order restricting US companies from transacting with Chinese telco Hauwei further escalated tensions.

The Australian equity market outperformed with the ASX200 Accumulation Index adding 1.71% in May.

A Federal Election result that few saw coming boosted returns locally. Having raised cash prior to the Election we are now more optimistic on the strength of the local economy for next year. We are revisiting our longer-term thesis here and considering greater exposure to domestic Australian cyclical businesses that we think will benefit from a local recovery. BLD is a recent recommendation we like even more now.

Large caps performed strongly with the banks rallying heavily following Labor’s proposed abolition of the Liberal Government’s negative gearing and franking credit policies.

Elsewhere, insurers Medibank (MPL) and NIB (NHF) bounced 15-20% as a future cap on premium increases under a Labor Government was avoided.

Oil prices fell sharply with escalations in the trade war and smaller than expected declines in US crude inventories leading to an oversupply. Brent and WTI fell 15% to $61 and $53/barrel respectively.

Iron ore rallied 10%. China’s iron ore imports continue to climb with steel output rising to record levels. Supply side issues in Brazil and Australia also contributed to iron ore trading $105/tonne.

Contributors to performance in May were Boral (BLD) +12% and Telstra (TLS) +8%. BLD rode the tailwind of a Coalition victory with sentiment on the construction sector improving. TLS benefitted strongly from the news that the TPG and Vodafone merger had been blocked by the ACCC.

Detractors were BWX (BWX) -23% and Pendal (PDL) -20%. BWX announced a further earnings downgrade and a new incoming CEO. We are hopeful the restructure and rebasing of earnings expectations can finally translate into improved performance. PDLs 1H results were weak with cash earnings and performance fees falling significantly. PDL pays a 7% dividend and trades at a significant discount to its peers and we believe performance will turn around.

We were active across the SMAs in May. The Growth SMA reduced its position size in APT and exited SEK. We also purchased VAS following the results of the Federal Election. The Diversified Income SMA added BLD to the portfolio and the Defensive SMA reduced some of its MXT exposure to take advantage of the discount on offer in the rights issue. The international SMA went unchanged. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

RISK PROFILE PERFORMANCE FIGURES
As at 31 May 2019
Pre-Franking Credits

SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
As at 31 May 2019
Pre-Franking Credits


What is a Separately Managed Account (SMA)?

 

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

 

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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Prime SMA Performance Summary – April 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 continued to climb higher as momentum drove the MSCI World Index up 3.5% in April.

The volatility that plagued equity markets in the December quarter appears to have abated somewhat despite no progress or resolution to the ongoing US/China trade war.

Although global bond yields rallied somewhat throughout the first half of April, they remain comfortably low. US 10 year Treasury yields rose to 2.50%.

The US was the notable outperformer in April rising 4% to all-time highs as stronger than anticipated economic growth gave investors further cause to buy the market.

The Australian equity market also rallied with the ASX200 Accumulation Index adding 2.4% in April.

Oil continues to bounce higher as the US demanded buyers of Iranian oil cease purchases by May or face sanctions. Both Brent and WTI rallied nearly 6% to $71 and $63/barrel respectively.

Iron ore continues to approach the $100/tonne level as supply side shocks from both Brazil and Australia were met with solid demand from China. Iron ore trades $96.50/tonne.

Contributors to performance in April were Afterpay (APT) + 22%, Amcor (AMC) + 4%, ANZ and WBC + 4.5% and 6%. APT trades well with both user and merchant subscription numbers in the US tracking nicely and the upcoming rollout of its UK business exciting the market. AMC announced a 16.8c dividend as it moves towards finalising its acquisition of Bemis whilst the banks were well bid ahead of their upcoming ex-dividend dates in the second week of May.

Detractors from performance were BWX (BWX) and Pendal (PDL) which fell -4.8% and -1.3%. BWX was weaker despite there being no news released in April. We await an update from management detailing whether a turnaround in its key Sukin branded products is occurring. In the case of PDL, April fund flows disappointed with a notable outflow in PDLs higher margin JO Hambro unit. Despite the headwinds facing Pendal, dividend income remains steady and PDL stock trades at a significant discount to its peers. We continue to hold the stock with a keen interest on the next set of FUM flows.

We were less active than normal in April with a Federal Election looming. However, we reduced our position size in NUF and established a new position in Boral (BLD) in the Growth SMA. The Diversified Income SMA exited its position in the Rare Infrastructure fund and used the proceeds to participate in the new Metrics IPO – the Income Opportunities Trust (MOT.) The Defensive SMA likewise participated in the MOT IPO whilst the International SMA sold down its MGG holding. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

RISK PROFILE PERFORMANCE FIGURES
As at 30 April 2019
Pre-Franking Credits

SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
As at 30 April 2019
Pre-Franking Credits


What is a Separately Managed Account (SMA)?

 

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

 

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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Prime SMA Performance Summary – March 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 continued to climb higher in March with the MSCI World Index rallying for the third consecutive month adding 1.5% to take the annual year-to-date return to 11.5%

The Federal Reserve’s pivot on monetary policy and a possible resolution to the US/China trade war continues to provide investors with an increased appetite for risk.

US 10 year Treasury yields fell to 15-month lows to yield 2.40%.

China was the notable outperformer in March adding 5% following positive developments on a trade deal. Further policy stimulus in the Chinese economy has also boosted its equity market which has risen 24% this calendar year.

The Australian equity market was slightly ahead in March with the ASX200 Accumulation index adding 0.73% and up close to 11% for 2019.

Large amounts of dividend income hit client portfolios in March due to reporting and dividend season the month prior. PRIME continue to advocate holding a little extra cash in the medium term given our view equity markets are appearing fully valued and due a correction in the near term.

Oil rallied for a third consecutive month with Brent rising 1.8% to $68/barrel and WTI to $60/barrel (+5%.)

Contributors to performance in March were Afterpay (APT) +14%, Pendal Group (PDL) +8% and Regis Healthcare (REG) +7%. Surprisingly there was no fundamental news out on any of these individual stocks during the month so in the case of APT we are attributing its strong performance to its 1H financial results released at the end of February which continues to show strong growth in both users and merchants and continued expansion into the US market. PDLs performance was simply due to the stock having been oversold in the backend of 2018 whilst REG saw a few brokers raise their target prices.

Detractors from performance were Nufarm (NUF) and IOOF (IFL) which fell 10% and 7% respectively. NUFs temporary suspension of its interim dividend along with a minor cut to full year guidance was poorly received by investors who marked the share price down. We support management’s decision to preserve the balance sheet and whilst disappointed with the cut to EBITDA guidance remain upbeat about the company’s future prospects, so much so that we used the share price fall to significantly add to positions. IFL was weak on little news flow so we consider this to be a minor reversion of the previous month’s 30% gains.

We were active in March reducing our position sizes in APT and DOW whilst adding to TLS and NUF in the Growth SMA. The Defensive SMA received capital back for the WBCPDs which were redeemed whilst the Diversified Income and International SMAs were unchanged. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

RISK PROFILE PERFORMANCE FIGURES
As at 31 March 2019
Pre-Franking Credits

SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
As at 31 March 2019
Pre-Franking Credits


What is a Separately Managed Account (SMA)?

 

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

 

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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Prime SMA Performance Summary – February 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 continued their charge higher in February with the MSCI World Index rallying another 5.5%

Global risk sentiment improved on the back of increased optimism a trade deal between the US and China would emerge as the deadline for additional tariffs was extended.

The US equity market added 3% driven by trade talks and a solid Q4 corporate reporting season. More than half of companies that reported exceeded expectations with Apple and Netflix both extending their previous month’s gains.

The USD was stronger against a basket of currencies with the AUD buying 71c at the end of February.

US bond yields snapped a 3 month losing streak rising as risk appetite picked up. US 10 year Treasury yields added 9bps to yield 2.72%

Asian equity markets tracked higher and China soared 13.8% following a possible resolution to the trade dispute. Interestingly Morgan Stanley Capital International (MSCI) announced it will quadruple its weighting of Chinese mainland shares in its global benchmarks which could add $80bn of foreign inflows to the Chinese economy.

The Australian equity market was stronger with the ASX200 Accumulation Index rising 5.98%.

Oil continues to climb higher with Brent rising 8.5% to $66/barrel and WTI to $57/barrel (+6%.)

Australian reporting season was a shade weak with one quarter of companies exceeding expectations and one third disappointing.

Rising cost pressures and stagnant wage growth continue to impact consumer spending which ultimately impacted performance.

Contributors to performance in January were BWX (BWX) and IOOF (IFL) +54% and +30%. BWX responded to recent downgrades reporting $7m in 1H EBITDA but more importantly looks more likely to achieve its revised $28m full year earnings number. On <14x FY20 earnings numbers we continue to think the market has oversold BWX. IFL which had also been heavily sold off following APRAs move to disqualify five executives outperformed the market posting 6% growth in net profit and strong growth in its funds under management and advice business.

The worst performer was Nufarm (NUF) which fell 16%. There was no exceptionally weak day for NUF, rather a steady decline over the course of the month. NUF has been sold-off due to a prolonged Australian drought and concerns around the use of Glyphosate more commonly known as Roundup. We think both these concerns are overplayed and believe there is a substantial opportunity in its development of Omega 3.

We were active in February exiting our position in MFG and trimming our holdings in AMC, APT, HSO and QUB in the Growth SMA. The Diversified Income SMA likewise booked profits in MFG and exited the holding while the Defensive and International SMAs remained unchanged. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

RISK PROFILE PERFORMANCE FIGURES
AS AT 28 FEBRUARY 2019
PRE-FRANKING CREDITS

*Annualised return. Portfolio inception date 03/07/2012

SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
AS AT 28 FEBRUARY 2019
PRE-FRANKING CREDITS


What is a Separately Managed Account (SMA)?

 

What’s the benefit of a Separately Managed Account (SMA) to a Managed Fund?

 

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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