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 – Monday
Records broken…
Global sharemarkets will begin the week on a negative footing as it appears the second wave is upon us. Several of the US largest southern states contributed to an all-time high in cases, whilst similar outbreaks in Germany and to a less extent in Melbourne, are making investors nervous once again.
The Dow Jones and S&P 500 finished the week by falling 2.8% and 2.4% respectively, taking the weekly fall to 3.3% and 2.9%. The story was similar in Australia, with the ASX 200 (ASX:XJO) capping a mixed week with a 1.5% rally, driven by the financial sector, with Westpac Banking Corporation (ASX:WBC) adding 3.3%.
The market finished down 0.7% for the week, with energy (-4.3%) the biggest detractor. Long suffering investors and bond holders in Virgin Australia Holdings Ltd (ASX:VAH) may be getting some certainty, with Bain Capital announced as the preferred bidder, with a vote by creditors (including bond holders) the only thing standing in its way.
Too little or too much?
Regulation was the name of the game, with market movements driven heavily by a number of announcements. In the US, it was the loosening of the ‘Volcker Rule‘, allowed investments banks to invest more aggressively that initially benefited the likes of Goldman Sachs Inc. (NYSE:GS) and JP Morgan Chase & Co (NYSE:JPM).
However, the Federal Reserve’s announcement on Friday that all share buybacks were suspended, and dividends capped at an average or the previous years, saw share prices fall 8.6% and 5.5%. This is quite an extraordinary decision by the central bank, and I can only imagine how Australian income seekers would react to a similar policy.
Facebook Inc. (NASDAQ:FB) is facing huge pressure on its censorship policy, with many of the world’s largest businesses either ceasing or pausing ad’s on the platform. The likes of Unilever NV (AMS:UNV) and Coca-Cola Co (NYSE:KO) pulling their spend resulted in an 8% fall in the stock on Friday. There is little doubt that regulatory pressure on social media platforms will follow.
Everything is golden
After years of being effectively left out of portfolios, gold bullion is clearly attracting substantial investor flows in Australia; offering a flow on effect for smaller gold miners. Saracen Mineral Holdings Ltd (ASX:SAR) rose 13.6% for the week, as did Perseus Mining Ltd (ASX:PRU), up 9.9%, as the US dollar gold price hit a near decade higher above $1,750 per ounce.
Despite market leading returns, few investors nor market commentators seem to appreciate the currency impact on the gold price with the AUD value now closer to $2,600. In my view, one of the key drivers of the resurgence has been a focus on total return amid a swathe of dividend cuts, something I covered in my article on the six changes all investors should consider before 30 June.
Embattled food franchiser, Retail Food Group (ASX:RFG) offered an update to investors, confirming they had received concessions on leases for over 400 hundred of their associated stores and that they still expect to deliver earnings of $35 million for the financial year.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
