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.
ASX200 lower on bond rates
ASX200 lower on bond rates, Crown (ASX:CWN) to face commission, Costa Group (ASX:CGC) boosted by avocados
The ASX200 finished 0.2% lower on a mixed day for the market, with resources and materials leading the way adding 2.6% ahead of a bumper dividend season.
Most of the weakness came from the healthcare and IT sectors as the 10-year bond yield moved past 1.5%.
The Victorian Government announced a Royal Commission into Crown Ltd’s (ASX:CWN) Melbourne casino after the market closed, suggesting recent pain is set to continue.
Bank of Queensland (ASX:BOQ) announced its intention to purchase the industry super fund owned ME Bank for $1.325 billion, becoming an $88 billion bank. The deal will be funded via a 1 for 3.34 share placement at $7.35, a 9.3% discount.
After forecasting a year without profit growth, Macquarie Group (ASX:MQG) updated expectations today on the back of an unexpected windfall from the power outages and snowfall in Texas.
MQG’s investments include the physical movement of gas along major pipelines with volumes set to benefit due to diversions from their other assets towards the state; profit is expected to be 5-10% above the previous year.
Berry, tomato, and avocado producer Costa Group (ASX:CGC) jumped 13.0% after reporting an 11.2% increase in revenue that resulted in a 108.4% increase in net profit to $59.4 million.
The company appears to be regaining the trust of investors after a difficult few years, with growth in their sales of avocados and citrus operations, which were 13% and 12% higher, the highlights.
Building boom benefits Reliance (ASX:RWC) and BlueScope Steel (ASX:BSL), Lend Lease (ASX:LLC) challenges continue
The pandemic-induced ban on travel has seemingly created a building and home renovation boom with both Reliance Worldwide and BlueScope key beneficiaries.
Reliance delivered a record dividend on the back of a 12.8% increase in revenue to $642.4 million. The company reported strong sales growth across all key markets including the US (22%), Asia Pacific (14%), and Europe (10%) resulting in an 82.4% increase in profit to $91.4 million.
Despite the result being a beat on expectations, the share price fell 2.5% on the news after a circa 20% run up in the weeks prior.
Management of BlueScope Steel announced that order and dispatch rates for their inputs into key construction materials remained robust in January, continuing the 2020 trend.
The company reported a 78% increase in profit to $330.3 million despite sales falling 1% to $5.8 billion due to the stronger AUD.
The dividend was maintained at the previous year’s level of 6 cents per share, with the earnings beat the share price moved 2.6% higher.
With the positives come the negatives. As building materials improved, the builders and contractors themselves appear to be struggling.
Lendlease (ASX:LLC) dropped 1.3% after cutting its dividend by 50% to 15 cents per share. The company was hard hit by lockdowns across every key market, with revenue falling 29.6% but showing signs of stabilisation in the second half.
With a growing number of major projects delayed and a portfolio including retail and apartments to be sold, the short-term appears difficult.
Nasdaq hits three week low, energy, financials rally, copper surpasses nine-year high
US markets continue to weaken, driven primarily by concerns over the valuation of mega-cap tech stocks and those that have benefitted most from ever lower interest rates.
So-called long duration assets are at risk of a correction should the bond rate continue to move higher in the coming months; however, it seems like central banks will continue to pursue money printing policies to soften the blow.
The Nasdaq fell 2.5% and the S&P500 finished down 0.8% somewhat cushioned by a rally in banking and energy stocks.
Experts are now predicting the oil price to move back towards US$70 per barrel in 2021 from their current levels around US$64 due to supply issues combined with a vaccine-led economic recovery.
Copper, which is seen as a leading indicator for the economy, has reached a nine-year high of US$9,000 with its use in everything from electric vehicles to construction to machinery.
