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.
Earnings season begins
Earnings season begins, Challenger (ASX:CGF) reverses recent gains, Crown Ltd (ASX:CWN) locked out
The ASX200 fell 0.9% as reality sets in after what had been an incredibly strong few weeks. Every sector finished lower lead by yield plays in property and utilities, off 2.1% and 1.4% respectively.
All eyes will be on Crown Ltd (ASX:CWN) once it recommences trading after the NSW Government Enquiry concluded the group was ‘not suitable’ for the Barangaroo casino license it was seeking.
Challenger Financial (ASX:CGF) had rallied around 10% in the lead up to its half-year earnings report, but investors were disappointed by an unexpected reduction in the dividend, from 17.5 cents to 9.5 cents per share; the share price fell 14.8% on the news.
This appears somewhat of an overreaction, as management rather promise results across their fund management and annuity businesses.
Specifically, Fidante Partners, which offers fixed income and similar actively managed funds, saw inflows triple during the half, with the broader group reporting another $6.4 billion in investment funds, up 32% on 2019 levels.
More importantly, the core annuity businesses have returned to strong growth, with Australian lifetime annuity sales increasing 11% and Japan remaining the highlight, seeing 15% growth as investors seek consistent retirement income options.
Management reiterated profit guidance despite a 14% fall in the first half, with large cash holdings in their investment portfolio a major drag on returns.
Boral (ASX:BLD) dividend on hold, Macquarie (ASX:MQG) sailed through 2020
Cement and building material supplier Boral Ltd (ASX:BLD) also underperformed, falling 7.4% after management elected to hold off on the payment of an interim dividend.
This offsets the 10% gain the shares have seen in the last week alone, but similar to CGF, the larger story remains positive. Statutory profit increased 18% for the year to $161 million following a reversal of recent history.
In this case, the lack of restrictions in the US meant housing construction and building delivered earnings growth of 12%, whilst the stalling of major construction projects resulted in a 20% fall in Australian earnings to $128 million.
Management has continued with a ‘slowly-slowly’ approach to the rationalisation of their non-core US businesses, offering little in the way of a progress update on their potential sale.
On a positive note, the cost-cutting and renewed focus on efficiency delivered another $333 million in free cash flow, with a dividend unlikely to be far away.
Macquarie Group (ASX:MQG) was by far the highlight, reporting that profit for the 2021 financial year will be broadly in line with the previous year, despite the backdrop of COVID-19 slowing every aspect of their business; shares rallied 6.6% on the news.
Looking more closely, Macquarie Asset Management saw assets fall just 1% to $550 billion, with performance fees offsetting weaker margins in their Banking and Financial Services business or BFS.
Approved loans increased 9% supported by a 3% increase in deposits, Macquarie Capital delivered 100 transactions in the quarter, totalling $58.4 billion in value, the float of Nuix (ASX:NXL) among them. All in all, this was a show of strength from a resilient company.
US overcome intraday falls, bonds in focus, Softbank (TYO:9984) delivers after year from hell
US markets overcame an initial sell-off to finish flat across the board, the Nasdaq heading 0.1% higher and the Dow Jones 0.0%, despite the headwind of a spiking 3-year bond yield.
Investors seem to be increasingly wary about the long-term impacts of the combined fiscal and monetary stimulus after the 30-year bond yield hit 2% overnight.
Yet with signs of economic weakness, it seems unlikely any stimulus will be reduced for the time being, potentially supporting ever-higher valuations.
Technology and investment company Softbank (TYO:9984) appears to have overcome a difficult 2020, during which the high profile failure of WeWork impacted profits and confidence, delivering a quarterly profit of US$11.6 billion on the back of US$16.8 billion in investment gains within its Vision Fund.
The company is similar to a LIC, with many underlying investments spanning unlisted and listed markets including Door Dash (NASDAQ:DASH), Amazon Inc. (NASDAQ:AMZN) and TSMC. Net sales increased US$14.3 billion, up 10.7 from 2019.
