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
Just keep holding on
The ASX 200 (ASX:XJO) managed to hold onto a small gain on Wednesday, adding 3.5 points despite dropping 1% at the open. CSL Ltd (ASX:CSL) almost singlehandedly floated the market, with its 2.6% rally adding 10 points to the ASX 200 alone.
Similarly, Wesfarmers Ltd (ASX:WES) benefited from a round of broker upgrades following stronger than expected retail sales figures highlighted here.
Once again, gold miners and healthcare rallied, benefiting from a weaker AUD with junior miner Gold Road Resources Ltd (ASX:GOR) up 6% and Northern Star Ltd (ASX:NST) managing a similar recovery. After years of being underappreciated gold has finally moved into the mainstream amid the COVID-19 volatility, offering one of the few uncapped returns in the market.
In my view, it should form a part of all long-term portfolios in this ‘new normal’ for its hedging benefits but investors need to be consider the benefits of hedged or unhedged positions.
‘Whatever we can, for as long as it takes’
They were the words of Federal Reserve Chairman Jerome Powell overnight as he announced US interest rates would likely remain on hold until at least 2022.
Investors seemed to focus more so on his comments around the potential for long-term damage to the economy sending all markets down, the S&P 500 (SPX:IND) -0.5%, Euro Stoxx -0.8% (SX5E:IND) and the Dow Jones (INDU:IND) -1%.
Technology continued to rally, Microsoft (NASDAQ:MSFT) adding 3.7%, with the more cyclical beneficiaries including Boeing (NYSE:BA) and American Express (NYSE:AXP) off -6% and -4% respectively.
There has been growing coverage of the increasing cash holdings building up on the portfolios of professional investment managers and suggestions that this extended rally may have been driven by short sellers now covering their position. If this is the case, expect the current daily whipsaw to continue with buyers re-entering the market on any falls.
Oh…..Harvey
White goods and electronics retailer Harvey Norman (ASX:HVN) delivered what appeared to be a fairly innocuous sales update to the market, announcing sales were up 17.5% on 2019 for the five months ended May 31. The result was a reinstated of the previously ‘deferred’ dividend via the payment of a 6-cent special dividend, sending the share price up 7.3% and leading all constituents.
Kogan Ltd (ASX:KGN) appears is seeking to capitalise on its recent popularity, raising $115 million at a discount of just 7.5%; in my view, this raising is one to avoid as it smells of opportunism.
Toll road owner Transurban’s (ASX:TCL) troubled Westgate Tunnel project has moved to the Supreme Court after CIMIC (ASX:CIM) and John Holland sought to tear up the $6.7 billion build citing ‘force majeure’ due to unexpected soil contamination issues.
It’s looking increasingly unlikely the project will be finished anytime soon placing pressure on the extension to Transurban’s leases on its other toll roads. With TCL having recovered most of its losses already, this is one we would be avoiding for the time being with a potential capital raising around the corner.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
