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 – Wednesday
Stage 3
Despite a strong overseas lead, the ASX 200 (ASX:XJO) paused on Tuesday, pushed marginally lower by the reinstatement of Stage 3 restrictions in Melbourne. A strong lead from the mining sector, particularly gold with St Barbara Mining Ltd (ASX:SBM) adding 10.3% and BHP Group Ltd (ASX:BHP) up 1.3%, wasn’t enough to overcome an afternoon collapse in the property and travel sectors.
Just four of the eleven sectors were positive, with A-REIT’s down -1.7% on the back of a fall in shopping mall owners Scentre Group (ASX:SCG) and Lend Lease Group (ASX:LLC), down over 4% each. I reiterated the risk of this sector on many occasions, with multiple shutdowns a real risk to the profitability of these business, particular should major tenants like BIG W or Target depart.
The story was similar in the US, with record new cases causing a reversal of recent loosening’s, sending the S&P 500 down 1.1%, with American Airlines (MYSE:AAL) and Carnival Corp (NYSE:CCL) down over 6%.
Active vs. passive
It turns out active managers can outperform, with both Magellan Financial Group Ltd (ASX:MFG) and Australian Ethical Investment Ltd (ASX:AEF) improving up 2.7% and 8.2% respectively. The form announced net inflows of $249 million in June, just as the market peaked, and the latter raised profit guidance after its ESG-focused Emerging Companies Fund outperformed by ~7% for the financial year.
In a sign that times really are changing, Coles Group Ltd (ASX:COL) announced that its November, yes November, AGM will be held virtually, in what should be a boon for registry providers like Link Administration Services Ltd (ASX:LNK).
Whilst I’m somewhat tired of wiring about the company, Afterpay Ltd (ASX:APT) remains in the news, reported an 112% increase in sales to $11.1 billion, 116% in active customers to 9.9 million and an opportunistic capital raising of $1 billion as they seek to expand into Canada. Interestingly, the founders are selling $250 million into the offer, which is never a great sign.
Lower for longer
The pronouncements of lower returns from sharemarkets for the next 10 years are once again being heard from ‘experts’, the same comments made three years ago before markets eventually pushed closer to all-time highs. As always, I suggest forecast be put to one side and investors focus on investing into quality, growing companies regardless of the environment.
The booming food delivery sector is seeing another round of consolidation, with Uber Technologies Inc. (NASDAQ:UBER) buying Post Mates for $2.65 billion in equity; in my view anyone selling a company should be seeking cash and not equity no matter the quality of the buyer.
The economic news was generally positive, with the Reserve Bank of Australia leaving rates at 0.25%, but its comments quickly out of following the Victorian Prime Minister’s conference at 3.15pm. Italian retail sales recovered, up 24.3% and only down 10.5% on 2019’s figures, Japanese spending was off 16.2% on 2019 but only 0.1% on May.
The European economy appears to be moving forward faster than the US, with Louis Vuitton Moet Hennessy (PA:MC) adding 0.3% despite the rest of the market falling 0.9%; a solid buying opportunity in my view.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
