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 shares update; AUD hits a 12 month high
ASX 200 down 0.9%, Federal Reserve boosts US markets, AUD hits a 12 month high
The ASX 200 (ASX:XJO) finished 0.9% lower on Friday and down 0.6% for the week; the second straight week of losses.
Selling was broad-based but particularly coming from materials, down 1.8%, as Australia upped the trade war ante following PM Scott Morrison’s crackdown on deals with China.
The AUD rallied strongly following the Federal Reserve’s about face on inflation targeting hitting 73 cents and placing pressure on an already struggling Australian economy.
Small-cap sports gambling company Pointsbet Holdings Ltd (ASX:PBH) jumped 88% in a single session after announcing a partnership with NBC Sports, the leader in the US with some 184 million regular viewers; management announced a $300 million capital raising at a discount to the new share price.
Elsewhere avocado, berry and citrus producer Costa Group Holdings Ltd (ASX:CGC) gained 11% after announcing success in its turnaround following a difficult year of droughts and poor growing conditions.
Management flagged a strong improve for the remainder of 2020.
Boral Ltd (ASX:BLD) doing the hard work
“I’m not in the business of just throwing more money at our problems” – New Boral Ltd (ASX:BLD) CEO Zlatko Todorcevski delivered this refreshing statement allaying the fears of shareholders that a discounted capital raising may be around the corner.
The business managed to surpass expectations, which were lowered following a pre-announced $1.3 billion impairment to their US business, net profit excluding this was $181 million, substantially better than expected.
The new board elected not to pay a dividend for the second half, following a 30% fall in earnings to $710 million. The company remains well positioned for an expected boom infrastructure spending with some 25% of income sourced from the sector.
Paradigm change for US policy, Abenomics comes to an end, USD weakens
President Trump appears to be getting his final wish in the lead up to the election; a weakening of the USD to support the economies home-grown manufacturing and export base.
The catalyst was an about-face from the US Federal Reserve indicating they would be seeking full employment and allowing inflation to track higher in future years.
The result was a 0.7% rally in the S&P 500 and 0.6% in the Nasdaq, with both finishing the week over 3% higher. Both Apple Inc. (NASDAQ:AAPL) and Tesla Inc. (NASDAQ:TSLA) continue to push all-time highs ahead of their impending stock splits.
My three lessons for the week were:
- Quality of management is as important as ever – AMPs cultural issues have been exposed in extensive detail this week, resulting in long-needed changes at board level; the question is whether the new CEO is up to the task of meeting community expectations. On the other hand, the decision from Borals CEO not to raise capital and take on the task of cleaning up their balance sheet was refreshing.
- Chinese policy is a growing risk for Australia – Australia’s inadvertent instigation of a trade war with China does not bode well for our economy, despite being in our long-term interests. The week saw a ramping up of rhetoric from the Federal Government and our most important trading partner. Investors should be looking closely at how exposed their portfolio of ASX companies may be.
- The Federal Reserve policy change is underappreciated – The decision by the Federal Reserve to loosen inflation targeting at the preference of full employment is a long-needed paradigm change that will have far reaching implications for the global economy. This should support a strong US economic recovery.
