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 Friday higher, dips 0.8% for the week
Another winning day despite Sydney lockdown, Boral offer increased, US infrastructure boosts commodities
The ASX 200 (ASX: XJO) delivered another strong day, finishing 0.5% as it followed a strong US lead.
This time it was news of President Biden receiving approval for his infrastructure package, which pushed the materials sector 1% higher.
Every sector barring consumer staples (-0.8%) and IT (-0.5%) were higher on Friday.
Boral Ltd (ASX: BLD) was the news of the day, with the share price jumping 6.2% to $7.33 after Seven Group Holdings Ltd (ASX: SVW) increased its takeover bid to $7.30.
Other winners on Friday were Charter Hall Group (ASX: CHC) which added 3.2% after confirming a $3.3 billion increase in the valuation of its property portfolio, and Kogan Ltd (ASX: KGN) which jumped another 5.9%. Nuix Ltd (ASX: NXL) continued to tank, falling 3.9%.
Over the week the ASX finished 0.8% lower, bucking the global trend as domestic issues continued to grow.
The IT sector continued its astonishing recovery, jumping 3.1% behind Afterpay Ltd (ASX: APT) which added 13.8% for the week.
Materials (2.3%) and real estate (0.9%) were next best behind Boral Limited (ASX: BLD) and Adbri Ltd (ASX: ABC) which jumped 8.3% and 6.8% respectively.
Mid-cap growth stocks continued to disappoint, with Codan Limited (ASX: CDA) down 8.8% and Mesoblast Limited (ASX: MSB) 6.9% over the week.
US markets rally, reflation trade continues, Nike hits record, and space travel approved
US markets finished the week on a strong note, with the more cyclical Dow Jones and S&P 500 adding 0.7% and 0.3% respectively, whilst the Nasdaq was broadly flat.
Over the week all three indices were positive, up 3.4%, 2.7%, and 2.4%, with Biden’s infrastructure deal combined with some calming words from the Federal Reserve supporting sentiment.
More data was released on Friday showing the mixed strength of the economy, with consumer spending in May finishing flat, well below forecasts of a 0.4% increase.
The Federal Reserve’s preferred inflation measure, the PCE or Core Personal Consumption Expenditure index, also missed expectations of increasing 0.5% in May as the impact of stimulus wore off.
Banking stocks including JPMorgan Chase & Co. (NYSE: JPM) also rallied after the long-awaited stress test showed the majority of the sector easily passed.
Virgin Galactic Holdings Inc (NYSE: SPCE) jumped 39% on Friday after receiving approval to complete consumer space travel.
Nike Inc (NYSE: NKE) hit a new record after recording a near doubling of sales over the last 12 months.
The group announced a 96% increase in sales to US$12.3 billion on the back of emerging markets and online sales, which have also doubled to US$9 billion in just two years.
Nike members now total 300 million, with shares responding by jumping 14%.
ESG becoming mainstream, little pain in property, looking under the hood of spending announcements
Woolworths Group Ltd (ASX: WOW) successfully demerged its liquor and hotels business this week, which saw a 4% increase in value for shareholders, with Endeavour Group Ltd (ASX: EDV) finishing at $6.20.
The move highlights an important trend that is emerging in capital markets known as ESG or Environmental, Social, and Governance investing.
In this case, major investors in Woolworths were likely concerned about their position as the largest owner of poker machines in Australia and their massive alcohol distribution network through the Dan Murphy’s brand.
These issues are a growing focus for me personally, for which I’m currently undertaking an extensive research process to ensure I’m implementing a responsible approach to investing.
Despite forecasts of doom and gloom, both Charter Hall and Dexus announced increases in the value of their diverse property portfolios which include everything from industrial, logistics and offices to residential.
Even retail shopping mall owner Vicinity Centres dropped its valuation only slightly.
With many property assets around the world still trading at discounts to just 18 months ago and with incomes that are linked to inflation, they may have a growing role in portfolios going forward.
News of the Biden Administration’s US$1 trillion infrastructure spend was greeted with a significant jump in market sentiment. However, a closer look at the announcement showed that ‘just’ US$579 billion is in new spending, with nearly half already previously committed.
