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; ASX struggles higher
ASX struggles higher, rates on hold, giant gold merger, US stocks fall
The ASX 200 (ASX:XJO) struggled to a 0.3% gain on Tuesday, the energy, +2.3%, and materials sector, +1.1%, the key contributors.
The biggest news was the ‘merger of equals’ between Australian gold miners Saracen Minerals (ASX:SAR) and Northern Star Mining (ASX:NST).
The merger will value the combined company at $16 billion making it a top ten global player with hopes of some $1.5 billion in synergies sending both share prices 10% higher on the news.
This may be the eternal pessimist, but the last time we saw a gold merger of this magnitude was Newcrest Mining (ASX:NCM) and their purchase of Lihir, which seemingly timed the top of the market.
Interestingly, NCM today announced they would be listing on the Toronto Stock Exchange.
The Reserve Bank chose to keep rates on hold at its October meeting with market participants all but guaranteeing a cut in all three short-term interest rates to just 0.1%.
This reference rate is key to ensuring the ongoing funding of the major banks, allowing them to lend this capital on but also support Australian Government bond buying in the secondary market.
Budget night built on hope, Baby Bunting seeing a boom, AGM season
The (delayed) Federal Budget delivers as the Government seeks to guide the economy out of a global economic contraction that is forty-five times worse than the GFC.
Most of the announcements had already been flagged, with instant asset write offs becoming uncapped, the stage two tax cuts being brought forward and tax losses able to offset previous profits.
The biggest surprise was a new ‘hiring credit’ through which businesses will be paid for hiring those currently unemployed between 16 and 35 years of age; combined the policies are expected to support close to one million new jobs in the next four years.
Baby Bunting Ltd (ASX:BBN) has clearly been a key beneficiary of lockdown, the company reporting same store sales growth of 17% in three months to October 2, 28% when Melbourne’s stores are excluded.
The group has benefitted from its e-commerce platform, online sales 126% higher in the quarter with ‘Click and Collect‘ sales doubling, over 233% higher.
The company’s profit margin improved as it was able to retain scale and now intends to open 4 to 6 new stores in 2021.
This is an important but underappreciated improvement, as it is those businesses able to leverage technology that can return to profitability more quickly, compared to say a travel agent, where they need more staff on the ground before they can deal with bookings at scale.
Star Entertainment Group (ASX:SGR) was the latest company able to negotiate with its lenders, agreeing to a waiver of important debt covenants that ensure its ongoing operations and avoid the need for more capital in the short-term.
President Trump gets busy, US stocks falter, stimulus on hold
President Trump was straight back to business after returning to the White House, requesting that his team cease negotiations with the Democrats on a second stimulus bill until after the election.
The market dropped sharply lower on the news, with both the Nasdaq and S&P 500 falling 1.9% and 1.4% for the day.
The White House also dropped its objections to the Federal Drug Authority’s approval process for a new vaccine, meaning any vaccine will not be cleared by election day.
It appears New York will shortly restart lockdown measures, with the combination of news supporting the WFH sector.
