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 finishes flat
ASX finishes flat, border closures hit travel, AGL Energy downgrades, weaker open ahead
The ASX200 (ASX:XJO) finished flat to begin the week, with news that US politicians finally agreed on a USD$900 billion stimulus package not enough to offset the NSW outbreak and subsequent border closures.
Every sector was lower apart from materials and consumer staples, with the latter benefitting from signs of hoarding emerging again, just as the population had begun returning to normal.
Once again, it was the iron ore price, surging over 8%, that was the driver of market performance, Fortescue Metals (ASX:FMG) adding 4.9%.
Once again, a landslide at one of Vale’s Brazilian mines was the cause of the price spike, which continues to solidify Australia’s position as a safe and consistent supplier of high-quality ore.
Sticking with commodities, AGL Energy (ASX:AGL) cut their underlying profit guidance for the year from a range of $560 million to $660 million down to $500 million to $580 million sending the share price down 5.1%.
The recent transformer issue at the Liddell coal-fired plant is unlikely to be fixed until March, having a significant impact on revenue, but this is likely to benefit the likes of Origin Energy (ASX:ORG).
Short attack hits WiseTech (ASX:WTC), City Chic (ASX:CCX) continues to buy, gold moves higher
Shares in WiseTech Ltd (ASX:WTC), an Australian technology success story that is a global developer of cloud computing solutions for transport-related businesses fell 6.6% after Viceroy published a negative research paper.
Known as a ‘short attack’, Viceroy suggests the company is an expensive ‘roll up’ which involves acquiring many smaller companies and seeking to extract higher valuations but never integrating them and extracting higher profits.
Any highly acquisitive company faces this kind of question regularly, hence it will be interesting to see how management responds. In my view, this is one best left to the risk-takers.
Ladieswear retailer City Chic (ASX:CCX) remains on the hunt for acquisitions after announcing the purchase of UK-based Evans Group as it expands its share of the so-called ‘plus-size’ market around the world and leverages a strong period for online sales into greater diversification; shares finished 11% higher.
Finally, the gold price once again moved above USD$1,900 following the stimulus package agreement, with investors once again turning towards real assets as money printing continues unabated. It remains a valuable hedge but investors must beware of the impact of currency moves if owned in AUD.
New UK virus strain shakes markets, borders closed, but stimulus on the way
Global shares fell across the board to begin the week following news of a new variant of the Coronavirus in the UK.
This has caused both extensive lockdowns along with border closures ranging from Italy to France and the Netherlands, sending the Eurostoxx index down 2.3%, the worst in two months.
On a more positive note, the Pfizer (NYSE:PFE) vaccine was approved by the EU and a Brexit deal is looking increasingly likely offering a solid base for growth in 2021.
In the US, investment bank JP Morgan (NYSE:JPM) soared 4.2% after the Federal Reserve released the results of their latest stress test, giving the sector a reasonably clean bill of health.
The result is the banking sector will be allowed to recommence stock buybacks and higher dividends, with JP Morgan announcing USD$30 billion to begin in the new year.
The strength supported the US markets, which recovered from early gains to fall just 0.4% and 0.1% for the S&P500 and Nasdaq respectively.
