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 lower, Gold miners surge
Gold miners surge, technology recovers, iron ore price down 6%, ASX lower
The ASX200 couldn’t capitalise on the strong lead from US technology stocks overnight, falling 0.8% as the lack of growth opportunities came to the fore.
Afterpay (ASX:APT) returned to strength jumping 7.5% after announcing the acquisition of Pagantis, a BNPL provider with a European presence.
All eyes, however, were on the AFR Business Summit this week where RBA Governor Phillip Lowe was delivered a much-anticipated speech.
The controller of monetary policy noted that the market was now predicted a spike in inflation and effectively pricing two interest rate hikes in the next 12 to 18 months.
Lowe was quick to dismiss this suggestion, confirming that the RBA’s eyes are firmly fixed on wage growth and a return to full employment, remaining committed to keeping the cash rate near zero for at least the next few years.
The result was a sell-off in interest rate sensitive businesses, with the financial sector falling 1.3% lead by the Commonwealth Bank of Australia (ASX:CBA), on the basis that net interest margins will remain challenged.
BHP Group, Rio Tinto (ASX:RIO) drop, gold on a roll, Hansen (ASX:HST) upgrades guidance
It has been a difficult start to 2021 with the increasing popularity of cryptocurrency, a strong AUD, and a spike in bond rates all sending the gold price lower.
Yesterday saw a reversal of that trend, with the gold price jumping significantly on the threat of at least a short-term burst of inflation.
Silverlake (ASX:SLR) and Ramelius Resources (ASX:RMS) were two of the key beneficiaries adding 7.3% and 9.8% respectively.
The opportunity for gold remains positive despite the recent underperformance as the economic recovery gained traction.
The iron ore price fell 6% overnight, with Fortescue (ASX:FMG) and Rio Tinto (ASX:RIO) feeling the brunt falling 8.3% and 5.5% respectively.
Hansen Technologies (ASX:HSN) upgraded earnings expectations by around 38%, sending the share price 24.3% higher.
The billing and data management provider flagged a major deal with Telefónica Germany on a prepaid subscription as the driver of the upgrade.
Dow hits 32,000, inflation muted, tech underperforms
The Dow Jones hit a record high above 32,000 points, jumping 1.5% on signs that inflation was a little further away than predicted.
This came at the same time that the Nasdaq remained in a correction (being a 10% market fall), down 0.1% this morning and the S&P500 up 0.6%.
According to Barrons, this is the first time in 20 years that the divergence in these indices has been so large.
The driver of sentiment was the passing of the stimulus bill to the White House for rubber stamping by President Biden in addition to a weaker than anticipated inflation result.
According to data providers, US inflation rose just 0.4% in February from 0.3% in January, but when volatile food and energy prices are stripped out, the rise was just 0.1%.
On an annual basis, the rate was just 1.3%, well below the target range of the Federal Reserve and therefore not sufficient to warrant any change in policy.
