Prime Australian Equities Growth SMA – July 2016

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Prime Australian Equities Growth SMA – July 2016

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.

 

DOWNLOAD the Prime Separately Managed Account (SMA) Report, July 2016

 

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Market Summary

 

July seemed to continue from where June left off, with investors scrambling to gain exposure to the market in the after-market of the post-BREXIT pessimism. The ASX200 is up 10% from its BREXIT lows.

 

A near hung parliament did little to temper the enthusiasm for shares, nor did the continued rise in Australia’s currency. Much of the optimism locally was born out of strong international share-markets, and a renewed confidence in both the US economic improvement and in ongoing central bank support.

 

Consumer stocks were the standout performers in July, driven by a strong jump in media and discretionary retail names and a +12% rise in Woolworths (WOW) after it gave 2016 profit guidance and plans for a rationalisation of underperforming stores.

 

In May 2016, PRIME shifted its stance on risk-assets to a CAUTIOUS ONE, and chose to reflect this view by raising cash weightings in each of its Separately Managed Accounts (SMA). We maintain this view and continue to retain substantial cash holdings in both the GROWTH and INCOME portfolios.

 

Portfolio Commentary & Positioning

 

The portfolio matched the strong jump in the ASX200 Accumulation Index, rising +6.18% against the +6.28% benchmark’s jump.

 

Though the portfolio only rose in-line with its benchmark, we were encouraged by the performance of many of its constituents and extremely happy that we managed to match the index in spite of our near maximum cash holdings.

 

The performance marks a welcome improvement after an indifferent period year-to-date, and we are hopeful that in a fully-valued market, our conservatism and value bias will prove fruitful to relative performance in the months ahead.

 

In such a strong month of returns, it is unsurprising that the portfolio had many strong contributors. IOOF (IFL) and QUBE Holdings (QUB) led the gainers for us, each rising 15%. IFL published sound fund figures and QUB saw confirmation of its takeover of Asciano (AIO) approved, neither of which we saw as particularly impactful to value. However, with both stocks cheap to our fair value, we were encouraged by the strong jumps.

 

Woolworths (WOW) finally started to show some life, rising +!2% in the month. The company posted a market update in which it confirmed 2016 profit guidance, whilst also announcing significant plans for asset rationalisation and a slowing in the previously aggressive supermarket roll out plans. We have high hopes for continued strength in the coming months as the group look likely to unveil additional asset sales (liquor and service stations) and ought provide further evidence of improving momentum within the core food business.

 

Insurance Australia Group (IAG) and Regis Healthcare (REG) were also standout performers during July. IAG in particular we see as being increasingly fully valued at $6.00, so we have begun reducing exposures ahead of full year profit results.

 

Oil stocks were again laggards, however we feel confident in the likelihood of an underlying oil price recovery in the months and year ahead. Encouragingly for Oil Search (OSH) its bid for fellow PNG oil & gas play Interoil was trumped by super-major Exxon Mobil (XOM), effectively allowing XOM shareholders to pay the price for project consolidation between the two competing LNG projects in PNG. OSH stands to significantly benefit from the likely rationalisation of infrastructure between the PNG LNG and Papua gas facilities.

 

The portfolio retains a high cash holding given concerns we feel towards the risk/return outlook for both local and global shares.

 

Transactions for the month

 

Trade Stock

REDUCE           Woolworths (WOW)

REDUCE            Insurance Australia Group (IAG)

 

WATCH VIDEO: What is a Separately Managed Account (SMA)?

 

Separately Managed Account (SMA): What is it? from Prime Financial Group on Vimeo.

 

DOWNLOAD the Prime Separately Managed Account (SMA) Report, July 2016

 

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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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By | 2017-06-16T15:16:19+11:00 August 26th, 2016|Active Management Performance|0 Comments

About the Author:

As the Chief Investment Officer (CIO) for Prime Financial Group, I work closely with the national advisory team, high net worth individuals, family groups and Prime’s broader accounting network to provide considered and pro-active investment advice.