Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Financial Planner morning report Tuesday
A cure on the horizon?
US-based drugmaker Moderna revealed positive results from its human trials of a Coronavirus vaccine, treating those yet to suffer from the disease with some positive results.
The Moderna share price rallied over 20% and sent US markets higher to return their strongest day in weeks, the Dow Jones adding 3.9%. It’s clearly too early to predict the eventual success of the treatment or any other vaccine, yet investors around the world seem desperate for any signs of positive news.
Bazooka’s and PE mergers
Jerome Powell, Chair of the US Federal Reserve, calmed markets once again stating overnight ‘the US is not out of ammunition by a long short’. His ‘whatever it takes’ moment.
After expanding the Fed’s purchases into junk bonds, the central bank may seek to follow the Japanese route of buying up sharemarket ETFs. Japan’s central bank now owns close to 90% of its local ETF market. Incredible.
With the COVID-19 shutdown causing a cleanout of many less efficient and capital-starved businesses, the merger and acquisition activity is beginning to grow. BGH Capital had a busy week after being shortlisted for the Virgin Australia recapitalisation but it also entered an exclusivity arrangement with Village Roadshow Ltd (ASX: VRL), the owner of Movie World and cinemas around Australia…
The things you can do when you have the might of Australian Super’s two million members behind you…
If you ask me, the offer for Village Roadshow shares appears to be an interesting arbitrage, with the offer price of between $2.20 and $2.40, but the share price still around $2.10.
BHP & Rio well placed
The Australian market pre-empted the US recovery as the Chinese government softened its hard-line stance on trade and Brazil’s government announced shutdowns of their key iron ore mining regions, sending BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shares up strongly.
In our view, both companies are well-placed to weather this and future storms whilst forming a key part of an anticipated infrastructure boom.
Softbank’s soft result
Softbank Inc, the manager of the so-called $100 billion Vision Fund, revealed it lost $17.7 billion for the year, as holdings in WeWork and Uber were written down by $4.6 billion and $5.2 billion, respectively. While the headline result sounds bad, we think investors should expect this type of volatility when holding start-up companies and believe there is substantial latent value in the internet conglomerate.
Closer to home, Elders Ltd (ASX: ELD) announced a 53% jump in profit as its new wholesaling acquisition added immediately to profits. Meanwhile, Superloop Ltd (ASX: SLC), the fibre connection provider, saw its shares shoot up a further 18% as it reiterated its forecast of $12 million to 15 million in earnings amid increased demand for more consistent fibre connections.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
