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’s morning report – Thursday
The end is near
The Australian economy is now experiencing its first recession in close to 30 years. The initial impact of the COVID-19 outbreak sent domestic GDP down -0.3% in the March quarter, with experts predicting a contraction of as much as -8.4% in June. But what does it mean? Clearly nothing as markets continue to rally, the ASX 200 (ASX:XJO) ending up 105 points or 1.8% for the day; it is now down just 11% for 2020.
Australia’s contraction was among the ‘best’ in the world, beating the likes of the US (-1.3%), UK (-1.9%) and the EU (-3.75%), thanks primarily to our continued reliance on construction and mining exports. The global rally also continued with The Dow Jones adding 2%, four stocks rising for everyone that fell and both banks like JP Morgan (NYSE:JPM) (+5.4%) and airlines, Boeing (NYSE:BA) (+12.9%) leading the way. I can’t help but fell a strange disconnect between the issues facing the global economy and the markets charger ever higher.
Questionable decisions
Australia’s Clime Investment Management (ASX:CIM), which operates its own managed fund products and financial advice decision has been identified as the unlikely buyer of financial services licensee Madison Financial Group, for $4.5 million. This will add compliance, administration and technology delivered to financial advisers to their diverse range of services. UAC Energy (UAC:BKK) lobbed a takeover bid for Infigen Energy Ltd (ASX:IFN), one of Australia’s few listed renewable energy providers focused on wind.
The offer was $0.80 or $777 million, with the share price immediately trading in line. Given the uncertain market, I’d suggest shareholders approve the deal despite protestations from the board. Chinese internet giant Net Ease (NASDAQ:NTES), has flagged a re-listing on the Hong Kong stock exchange, seeking more capital to expand internationally, despite some 89% of revenue coming from China 10 years after its initial global expansion.
Free money?
Amazon Inc (NASDAQ:AMZN), was the latest business to head to markets for more debt to fund its operations, managing to secure a three year loan at a rate of just 0.4%. This comes as Australian property experts predict that mall values could fall as much as 30% in the short term as rental receipts fall precipitously; not a good outlook for the likes of Scentre Group (ASX:SCG), Vicinity Centre’s (ASX:VCX) and Unibail-Rodamco-Westfield (ASX:URW).
The highlight of the day was no doubt the unexpected growth in Chinese PMI’s or leading economic indicators, with services moving into growth from 47 to 55 and manufacturing 54 from 47, suggesting the worst may be over, particularly for Australia. This impacted the likes of Northern Star Resources (ASX:NST) and Newcrest Mining (ASX:NCM), in my view the AUD rally will be short-lived as the real issues facing the economy come to light.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
