To achieve capital growth with moderate tax-effective income via franked dividends through investment in listed Australian securities.
The Model Portfolio is managed in line with Prime’s investment principles of long-term investment in high quality securities. The bottom-up approach focuses on business fundamentals, seeking businesses with strong balance sheets, structural competitive advantages, and purchasing them with the requisite dividend yield and growth prospects. The portfolio benchmark is the S&P/ASX200 Accumulation Index.
The ASX Accumulation Index rose 3.28% in January.
Equity markets took a while to get going this new year, falling 2% or so initially before motoring in the final weeks of the month. In much the same vein as December, Australian equities took their lead from a supportive macro-environment – the Australian dollar continued to fall (from 82c to 78c) and interest rates continued to rally (10-year government bonds fell from 2.75% to 2.47%).
The 10% fall in oil prices in the month also provided a boost to consumer finances, allowing Christmas retail sales to meet or beat initial expectations.
Employment improved in January, but consumer and business confidence remained largely flat.
The fall in the oil price has opened a real possibility for domestic interest rate cuts, and it was this feature that really drove the strong close to January in share-markets. The Bank of Canada surprised many in the market when they cut rates by 0.25% in January, and this was deemed as a harbinger for local interest rate policy by many, ourselves included.
Understandably the best performing sectors in January were interest rate sensitive – Telecoms lead the pack up 8%, Consumer Discretionary and Utility stocks also rose over 6% and Banks were up 4.5%. Energy stocks lagged, falling 6% and miners were only up 1%, however it is notable that both of these laggards were a lot worse during the month and have rallied hard in the last few weeks.
Portfolio Commentary & Positioning
The PRIME Australian Growth portfolio delivered its best monthly performance on record, rising 6.09% and outperforming the ASX200 Accumulation Index benchmark rise of 3.28%.
We were extremely pleased by the absolute return in this portfolio during January, and by the notable outperformance against what was a strong market. On a rolling 12 month basis to January 2015 this portfolio is up 24.07% and a importantly over 10% ahead of the ASX200 Accumulation benchmark rise of 12.45%.
Several of our core stock calls came home to roost in January which was fortunate. RESMED (RMD) delivered a 16% monthly rise after posting excellent US device sales, and Magellan Financial Group (MFG) also rose by 16% on Australian dollar weakness. The strength in MFG has allowed us to book profits to a large extent, and we used the proceeds to establish a new position in Flight Centre (FLT) group. We were fortunate in one sense, that having acquired FLT the stock then posted a 15% rise in the month.
Beyond these three names we were also aided by the 8% rise in Telstra (TLS), which is one of our largest positions. IOOF (IFL) and AGL Energy (AGL) also rose 6%.
We reduced our large Woodside (WPL) in the month. We continue to like WPL in the medium-term, however we felt our position was too large relative to our outlook for oil in the near term.
We used the proceeds from the WPL sale to add to core positions in both Crown Resorts (CWN) and IOOF (IFL).
Though we remain bullish for the year ahead, we remain cognisant of the recent burst higher and of the increasingly fuller valuations in some quarters of the market. TLS in particular is a name that we feel might carry a burden of expectations on it as we enter reporting season next week, but we see downside in the name as limited in light of local interest rate support.
We continue to search for appropriate additions to both portfolio’s in light of the strong performance from core names, but equally find little reason to jettison some of the out performers since their earnings momentum and relative valuations don’t raise too many concerns.
Transactions for the month
|Reduce||Magellan Financial Group|
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