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 – state of Disaster, banks under pressure, but a positive start ahead for the ASX
State of Disaster, banks under pressure, but a positive start ahead for the ASX
The ASX 200 (XJO:ASX) managed to fight off the widespread implications of Victoria’s ‘State of Disaster‘ announcement, finishing flat for the delay despite nearly all businesses now being forced to close down.
The banking sector were unsurprisingly among the hardest hit, with the ANZ Banking Group Ltd (ASX:ANZ) and National Australia Bank Ltd (ASX:NAB) both falling 4.1% as the shutdowns do not bode well for mortgage repayments, property prices or any sort of near-term recovery.
Interestingly, more than half of companies finished higher for the day but were not sufficient to offset weakness in the banking and retail sectors. Given the severity of these announcements, it’s likely the Commonwealth Bank of Australia Ltd (ASX:CBA) will take a very conservative approach with its dividend announcement on the 12th of August.
After several months of under-performance, the truly defensive names once again came to the fore, CSL Ltd (ASX:CSL) and Telstra Corporation Ltd (ASX:TLS) outperforming by adding 2.6% and 1.5% respectively; both remain core portfolio holdings in my view.
Tik Tok, Tik Tok, Nasdaq leading the way once again
Despite facing a record 1.9 million new coronavirus cases in July, double the prior monthly record, US markets continue to move higher, offering insight into the stark difference in approaches in the Northern Hemisphere.
The S&P 500 and NASDAQ finished 0.9% and 1.5% higher respectively, Microsoft Inc. (NASDAQ:MSFT) was a strong gainer following its decision to pursue an acquisition of the fast growing Chinese-owned Tik Tok social media platform, President Trump has threatened to shut the company down by 15 September if it isn’t sold; pursuing a China-like attack of foreign companies.
In my view, this would mark an exciting sidestep for Microsoft, the stock was up another 5.6%. In Europe, HSBC Holdings Plc (LON:HSBA) became the latest and largest bank to drop a bombshell, estimating loan losses of as much as $13 billion and announcing first half profit had fallen 50% to $5.6 billion; The Eurostoxx still managed to finish 2.3% higher, behind a combination of luxury and manufacturing names, as manufacturing data moved into growth once again.
Gambling, video games and space travel – two steps forward, one step back
Tabcorp Holdings Ltd (ASX:TAH), down 1.7%, was the latest company to join the chorus of earnings downgrades, offering a $1 billion write-down of good will from previous acquisitions and a 31% fall in profit for 2020, to $267 to $273 million.
The company has been hit heavily by forced store closures and gamblers tightening their belts; it may no longer be the recession proof business that investors first thought. Whilst a few days late, Electronic Arts Inc. (NASDAQ:EA) delivered one of the best earnings reports of the season, announcing 70% year on year revenue growth in the June quarter.
The software company designs video games including the world leading FIFA, Sims and Madden NFL sports titles, with the latter seeing 140% user growth as population’s isolated from each other, with limited live sport, turned to the next closest option.
The company has been a long-term holding in our preferred global equity fund, Munro Global Growth, one of the leaders thus far in 2020. To finish on a positive note, Tesla founder Elon Musk, managed to deliver the unthinkable via his SpaceX program, returning two NASA astronauts home safely overnight.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
