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 – Tuesday
Markets
The ASX 200 (ASX:XJO) followed a negative lead from Wall Street, falling 1.5%, albeit on lower volumes amid the beginning of school holidays. The market traded as low as 2.2% throughout the day, with chronic underperformers in the property sector like Unibail-Rodamco-Westfield (ASX:URW) seeing significant tax loss selling as 30 June nears.
With a single day of trade remaining, the market is off 13% for the financial year, the worst since 2009. US and European stocks recovered on better than expected economic data, with the S&P 500 erasing its June losses, finished up 1.5% and the Dow Jones Industrial Average up 2.3%. The driving force was twofold, record pending home sales, with contracts signed growing 44% in May, and the hope for additional stimulus from the Federal Reserve.
Boeing Co. (NSYE:BA) was the highlight, up 14% after test flights of the 737 Max were approved. In Europe, it was the financial sectors pushing higher behind the likes of Germany’s Commerzbank (DE:CBKG), with the Eurostoxx 600 up 0.6% due to their strong relative performance against the US in reopening the economy.
The next CSL?
Fisher & Paykal Healthcare Ltd (ASX:FPH) continues to stake a claim as the new CSL Ltd (ASX:CSL), rallying 6.8% on Monday after reporting a 37% improvement in profits. FPH manufacturers ventilators and benefited from a 300% increase in sales to hospitals resulting in an 18% jump in revenue for the year ended 31 March.
The result was a 15% increase in the dividend, sending the 2020 gains to 60%. As Qantas Ltd (ASX:QAN) fell below its capital raising price, off 5.0%, Regional Express Holdings Ltd (ASX:REX) added 17.0% after confirming its intention to enter the Melbourne-Sydney-Brisbane route. As highlighted previously, there is simply too much uncertainty in the travel sector to warrant an investment, and I’m surprised the QAN raising started with a $3 not a $2.
Finally, Lotto operator Jumbo Interactive Ltd (ASX:JIN) fell 13.2% despite announcing a new 10 year deal with Tabcorp Holdings Ltd (ASX:TAH) in Queensland, with investors seemingly disappointed in stepped fee increases to 4.65% in 2023.
Renewables getting interesting
The renewable energy sector has become more interesting by the day, with UAC Energy and Iberdrola in a bidding war for Infigen Energy Ltd (ASX:IFN), the takeover offer now hitting $0.89 cents per share. The wind farm operator joins the now Federation and Minderoo owned Windlab (ASX:WND) in the hottest sector of the moment.
Whilst the transition to a lower carbon economy has been heavily impacted during the COVID-19 crisis, trillions of dollars in stimulus, particularly across Europe and Asia, has been specifically targeted at the sector as Government’s embark on ‘Green New Deals’ and seek to exit the crisis stronger than before.
We enter the final day of trading for the financial year in a very different place to where it started, with central banks once again determining the outlook for investors. With some complacency creeping into markets, it’s my view that investors should be considered substantial changes to their investment strategy as we enter uncharted territory.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
