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.
Market update – Federal Reserve loosens inflation reins
Positive day ahead, Federal Reserve loosens inflation reins, Woolies delivers
It was a mixed day for the market, the ASX 200 (ASX:XJO) finished 0.2% higher despite trading up as much as 0.8% during the day.
It was the materials and consumer sectors driving the market higher, with BHP Group Ltd (ASX:BHP) and Woolworths Ltd (ASX:WOW) adding 1.1% and 2.8% respectively.
Woolies delivered a solid top line result but trimmed its dividend.
The standout was the Buy Now Pay Later with both Zip Co Ltd (ASX:Z1P) and Afterpay Ltd (ASX:APT) reporting incredible growth and unique pivots for their businesses; shares finished up 0.6% and down 4.6% respectively after yesterday’s all-time highs.
Z1P reported a 91% increase in revenue and 87% increase in transaction volumes, whilst APT delivered 103% in revenue growth.
More details on the major reports follow:
- Time to look ahead for Ramsay Healthcare Ltd (ASX:RHC) bore the brunt of the pandemic with mass shutdowns of elective surgeries hitting what was a strong year to February 2020.
- Shares fell 0.5%. The company reported a 43% fall in net profit to $337 million and cancelled their final dividend.
- Revenue actually increased 7.3% as the European expansion was included in portfolios, but particularly behind strength in their Australian operations, up 2.2% to $5.1 billion.
- Comment: Difficult year, but well placed for a boom in surgery, waiting lists and treatments post pandemic.
- Another messy result for Link Administration Services Ltd (ASX:LNK), but PEXA booming – Recurring revenue fell just 1% but shares finished 9.5% lower.
- Despite this, operating earnings fell 17% to $294 million and net profit to $114 million. This resulted in a lower than expected dividend, 3.5 cents per share.
- The PEXA property settlement platform was the biggest highlight, with transaction volumes increasing 37% and 75% of all Australian property transactions occurring online.
- This supported revenue growth of 50% to $156 million and a tenfold increase in operating profit to $53 million.
- Comment: Messy result, dividend disappoints but PEXA remains a key growth engine.
- Pandemic tailwind to flow into 2021 for Woolworths Ltd (ASX:WOW) – Delivered a weaker than expected result, despite a 6% increase in revenue to $63.6 billion for the financial year.
- Shares were 2.8% higher. Net profit fell 57% to $1.166 billion. Sales improved across the board with Australian and New Zealand Food up 8.3% and 10.5% respectively.
- BIG W’s turnaround continued, growing revenue by 10.5%, whilst Endeavour Drinks added 9.9%.
- Management declared a slightly lower dividend, at 48 cents per share.
- Comment: Weaker than expected, but defensiveness on show in the dividend.
- Operating leverage on show for Afterpay Ltd (ASX:APT) – Underlying sales were up 112% to $11.1 billion, revenue up 103% to $502.7 million and the net transaction margin sitting at 2.3%.
- Management indicated that annual transaction growth is currently running at $15 billion.
- The company reported a net loss of $22.9 million far better than the $52.4 million expected by analysts, supported by another fall in gross loan losses to 0.9% of their book.
- The incredible growth continues unabated, hitting 9.9 million active users and 55,000 merchants, but barely scratching the surface overseas.
- Comment: Another great result, but a difficult company to value.
More records, Virtual Summit at Jackson Hole, Walmart to buy Tik Tok?
The S&P 500 moved another 0.2% higher, experiencing a broad-based rally as Fed Chairman Jerome Powell outlined a new strategy for the US Federal Reserve and economy in general.
After decades of seeking, but ultimately failing to deliver, on an inflation target of 2-3%, the central bank will now be more flexible and focused on stimulating employment, rather than prices.
This will be achieved by ‘allowing’ inflation to run higher for periods of time, meaning the bank will not be forced to raise rates at the first signs of price, given the handbrake impact on the economy.
The decision was well received, as it is ensures ongoing monetary support and a preference for jobs. Meanwhile, Walmart Inc. (NYSE:WMT), yes Walmart!, joined Microsoft Inc. (NASDAQ:MSFT) for an official bid for Tik Tok’s US platform, sending both shares higher by 4.5% and 2.5%.
