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.
ASX shares update; Trump bans WeChat
ASX 200 ekes out a gain, tech profit taking continues, Trump bans WeChat
Global markets continued their negative trend on Friday, the ASX 200 (ASX:XJO) falling 0.3%, but managing to finish the week up a solitary 5 points; outperforming most global markets.
It was a similar story in the US, with both the Nasdaq and S&P 500 dropped 1.1% overnight, pushed lower by another ramping up of the technology and privacy war between China and the US.
The White House announced the banning of new downloads of both Tik Tok and the popular Tencent Holdings Ltd (HKG:0700) owned WeChat application that is used for messaging and money transfers.
The reasoning was simple; they are seeking to protect the privacy of American data. I’m interested to see if tech darling Afterpay’s (ASX:APT) Us expansion is impacted given Tencent owns 5% of the company.
Closer to home Sydney Airport (ASX:SYD) reported their monthly traffic volumes, down 96% on 2019 in August.
The company remains highly leveraged and high risk, effectively relying in the success of Victoria’s lockdowns.
Digesting employment data, quarterly rebalancing, ex-dividend dates
Dividend season continues to send the market lower, with cash flowing out of businesses and into the hands of investors.
Friday’s weakest was AMP Ltd (ASX:AMP) down 8.2%, trading ex-dividend its first payment in over a year.
Having digested the employment data, the importance of looking beyond the headlines must be emphasised.
As Alan Kohler put it over the weekend, there was actually a fall in the number of jobs, and an increase only in the number of people working for themselves.
The data is therefore suggesting the employment surge has come from temporary workers, such as food delivery, outsourcing and the rest of the so-called ‘gig economy’.
This is clearly not sustainable and not a surprise that some are suggesting effective unemployment is closer to 13%.
If true, the recent surge in retail spending is likely to be reversed in 2021, impacting the likes of Kogan Ltd (ASX:KGN) and JB HiFi Ltd (ASX:JBH).
Lithium stocks have staged a recovery despite a huge oversupply, Galaxy Resources Ltd (ASX:GXY) 7.2% higher ahead of Tesla Inc’s (NASDAQ:TSLA) battery day.
Key takeaways, behavioural biases, dispersion, where is the pain?
It is clear that emotion is driving markets on a daily basis. Having been locked down for close to six months, our views naturally fluctuate between bullish and bearish at any given moment.
To us, this reiterates the importance of having an objective and regular review process, quarterly being best practice, and seeking the views and inputs of other experts on a regular basis.
Markets continue to diverge with daily movements more reliant on company or sector specific news in general.
Discussions with a number of global managers this week reiterated the importance of having a flexible investment approach, avoiding the value vs. growth comparisons that plague our news media and focusing on the real companies into which we are investing (or avoiding).
It’s becoming increasingly clear that the COVID-19 lockdowns are hitting smaller rather than big businesses the hardest.
Those with sufficient cash or access to capital from shareholders are able to cut costs, remove staff and await the end of restrictions.
The result will see the strong become stronger, collecting market share, a powerful trend for investors; despite the clear negatives for the economy.
