Prime Australian Equities Growth SMA – June 2016

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Prime Australian Equities Growth SMA – June 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, June 2016

 

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Market Summary

 

June was a volatile month with the BREXIT decision dominating. The ASX200 fell 5% in the days post the decision, but like its global peers, set about a steady and quick rebound with help from the ongoing collapse in global bond yields.

 

The major global theme during June must surely have been the fall in bond yields. Australian 10-year bond yields compressed from 2.3% to under 2% by months end – a new record low.

 

The fall in bond yields allowed Australian utilities to outperform the market, and the portfolio’s large overweight in Telstra (TLS) bore fruit. However, in spite of the over-riding fears for global economic growth that dominated bond markets, miners yet again outperformed the broader index, helped by the continued rise in Chinese steel prices.

 

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 fell -2.59% during June, mirroring the -2.45% loss of the ASX200 Accumulation Index.

 

Performance of the GROWTH portfolio during June was again indifferent, and caps a 3-month period of underperformance that is the worst in over 3 years. Once again the portfolio struggled to make headway given its large-cap bias, with the ASX20 Leaders index again underperforming the ASX Mid-Cap 50 by over 2% during the month alone.

 

Within the portfolio, Crown Resorts (CWN) delivered an excellent +4.7% rise. CWN announced it would amend its ownership structure as a means to unlocking greater market value. Notably CWN plans to spin-off its international casino operations from its domestic Australian assets, and to conduct a partial IPO of the real estate underlying the Australian business. The company also announced its intent to pay out 100% of all normalised profits as dividends.

 

We were very encouraged by the news and feel like the stock should continue higher as we draw closer to the ultimate restructuring.

 

Sonic Healthcare (SHL) also continued its outperformance from May, rising in a down month. Telstra (TLS) too held its own, supported by the collapse in global bond yields, however continued issues with its mobile network’s reliability have held back additional outperformance year-to-date which has been a frustration.

 

At the other end of the spectrum, QUBE Holdings (QUB), Insurance Australia Group (IAG), our bank holdings and Woolworths (WOW) were the drags on better performance. Though the portfolio is only a market-weight on Australian banks, the continued underperformance of such a large portfolio constituent still hinders its ability to generate favourable absolute returns. Australian banks are the largest sector in the Australian market, and yet have underperformed the ASX200 Accumulation by nearly 8% year-to-date.

 

Falling interest rates are unhelpful for the Australian bank sector, and compound the pressures from increased regulation and a peaking Australian housing market. Falling interest rates also hurt insurers, and we think this is one of the reasons why IAG struggled. IAG has been a particularly strong performer for the portfolio since it was added, but we are minded to take some profits in this position given our core expectation for further cuts to domestic interest rates.

 

QUB struggled as investors began to focus on the impending ACCC decision relating to its consortium bid for fellow port and logistics group Asciano (AIO). Fortunately, performance month-to-date in July has seen some respite, and vindicates the decision taken in June to add to the position.

 

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
ADD QUBE Holdings (QUB)

 

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, June 2016

 

DOWNLOAD

 

 

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 | 2017-06-16T15:16:20+11:00 July 27th, 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.