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 – Thursday
The only way is up
Overnight, global share markets recovered on the back of an improving crude oil price, now $32 per barrel, and an uptick in airline bookings, sending both sectors up 4% in the US.
The S&P 500 (+1.7%) benefitted from the news that all 50 US states had now eased restrictions. In a sign the economy may be beginning to turn, the more cyclical smaller companies added 2.7%.
Walt Disney Co (NYSE: DIS) was a key beneficiary of the news overnight, as the likelihood of live sports returning coincided with improving sentiment. Despite Walt Disney’s cruise assets, I see the company as the global leader in content and a must-own in all portfolios.
The ASX managed to deliver a positive return on Wednesday after falling at the open, adding 0.2% on the back of a continued commodity price recovery.
Higher revenue, higher costs
US retailer Target reported results overnight, with digital sales increasing 141%, but profit falling some $500 million as the costs associated with dealing with COVID-19 began to bite. Target’s revenue rose to $19.62 billion for the quarter from $17.63 billion in the prior quarter thanks to a 12% larger basket of goods per customer. After close to a decade of cost-cutting and capital returns for shareholders, it seems the tables have turned.
Australian retail sales fell 17.9%, driven primarily by lower foot traffic, whilst 10% of all spending moved online. EML Payments Ltd (ASX: EML), which provides prepaid gift cards including servicing the likes of Smart Group and Zip Money, saw revenue increase 20% for the nine-month period to $87.1 million. However, the company withdrew guidance for 2021. EML delivered incredible margins of 73.7% on gross debit volumes of $9.83 billion, a 55% increase. This is an interesting play on the continued move to contactless payments around the world.
3 stocks to watch
Similarly to Walt Disney, CBS Media stock has rallied 20% in two days, after announcing its strongest streaming quarter ever, up 55%. Despite an inability to record new TV shows the company will benefit from a restart of the PGA Golf in June.
Australian Agricultural Company (ASX: AAC) appears to be faring through the export market difficulty quite well, reporting strong sales in Asia, up 19%, North America, up 34%, and Australia, up 16%. That said, AAC’s total sales fell $30 million, but profit improved $80 million on the back of improving livestock and property valuations.
Video Game producer Take-Two Interactive, which produces video games including NBA 2K20, Red Dead Redemption and Grand Theft Auto, remains a key beneficiary of the lockdowns, reporting 40% higher revenue at $760 million and profit growth of over 116%. As an avid fan of the NBA 2K series, this company appears well-positioned for changes to the way we relax post-COVID-19.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
