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.
Rates dilemma for Reserve Bank
The Australian stock market moved higher on Monday, ahead of today’s Reserve Bank board meeting, which is widely expected to see a pause in interest rate rises. Market pricing expectations clearly expect the RBA to leave the cash rate on hold at 3.6 per cent, but economists think the decision will be a closer call, with more than half of more than 40 experts polled by Finder.com.au predicting another lift in rates.
However, the decision has become more complicated by the fact that the surprise output cuts announced on Monday by the OPEC+ oil cartel immediately pushed oil prices higher and are likely to be inflationary around the world.
The benchmark S&P/ASX 200 gained 45.2 points, or 0.6 per cent, to 7,223, while the broader All Ordinaries index was up 43.1 points, also 0.6 per cent, to 7,416.4. The energy led the market higher, charge, as oil prices surged in the wake of the OPEC+ news.
Woodside advanced 89 cents, or 2.7 per cent, to $34.23; Santos gained 17 cents, or 2.5 per cent; to $7.07; Beach Energy added 5 cents, or 3.5 five per cent, to $1.465; and Brazilian-based producer Karoon Energy surged 14 cents, or 6.5 per cent, to $2.28.
Among the big miners, BHP eased 26 cents, or 0.6 per cent, to $46.97; Rio Tinto shed $1.34, or 1.1 per cent, to $118.80; and Fortescue Metals retreated 46 cents, or 2.1 per cent, to $22.03.
In coal, Whitehaven Coal rose 16 cents, or 2.4 per cent, to $6.89 and New Hope Corporation added 11 cents, or 1.9 per cent, but Terracom slid 3.5 cents, or 5.2 per cent, to 64 cents, and Stanmore Resources was down 3 cents, or 0.9 per cent, to $3.40.
Lithium miner Pilbara Metals slipped 14 cents, or 3.6 per cent, to $3.80, and fellow producer Allkem eased 11 cents, or 0.9 per cent, to $11.77. IGO, which mines nickel and lithium, lost 11 cents, or 0.9 per cent, to $12.66, while iron ore and lithium producer Mineral Resources managed a 13-cent gain, to $80.72.
Of the lithium project developers, Lake Resources surged 3.5 cents, or 7.9 per cent, to 48 cents; but Canadian lithium explorer Patriot Battery Metals dropped 12 cents, or 7.8 per cent.
The heavyweight financial sector finished 0.8 per cent higher, with gains for all the Big Four banks. ANZ put on 29 cents, or 1.3 per cent, to $23.22; Westpac lifted 23 cents, or 1.1 per cent, to $21.89; Commonwealth Bank appreciated 95 cents, or 1 per cent; to $99.27; and National Australia Bank gained 19 cents, or 0.7 per cent, to $27.91.
Defence contractor Electro Optic Systems rocketed 12 cents, or 26.4 per cent, higher to 57.5 cents after announcing that it had won a contract of up to $US80 million ($120 million) to supply 100 remote-controlled mounted turrets to Ukraine.
Unhelpful oil price cut puts Fed on notice
In the US, markets mostly lifted despite the fact that the oil output cut from OPEC+ is widely viewed as threatening to stoke inflation and recession fears. The 30-stock Dow Jones Industrial Average gained 327 points, or 1 per cent to 33,601.15. The broader S&P 500 index advanced 15.2 points, or 0.4 per cent, closing at 4,124.51. But the tech-heavy Nasdaq Composite index missed the memo, easing 32.4 points, or 0.3 per cent, to end the day at 12,189.45.
European markets closed slightly lower after the surprise OPEC+ oil output cut, although the oil and gas sector index advanced 4 per cent.
In the bond markets, the US 10-year Treasury yield closed unchanged at 3.415 per cent, while the more policy-sensitive 2-year yield also ended where it started the day, at 3.97 per cent.
On the commodities front, oil reacted as expected to the OPEC+ news, with the global benchmark Brent crude jumping US$5.04, or 6.3 per cent, to US$84.93 a barrel, and US West Texas Intermediate up 3 cents to US$80.45 a barrel. Gold gained US$26.88, or 1.4 per cent, to US$1,984.89 an ounce.
