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.
Financial planner daily report – ASX shares to rise at the open
Here’s what you need to know about markets this morning…
In the USA, it was Memorial Day. However, a strong lead from the local futures market was enough to send the ASX 200 to an 11-week high on Monday, but over 2% for the day. The European and Japanese markets also rallied, 0.8% and 1.7% respectively, with the German Government announcing a massive EUR$9 billion bailout of Lufthansa (LHR), in which they will take a 20% equity stake and board positions.
The rally was widespread in Australia with the likes of Boral up 5% and Webjet Limited over 13% as lockdowns continue to ease. Frankly, I’d suggest the valuations of many retail-focused companies may be getting ahead of themselves in the lead up the end of the financial year.
One of the more interesting phenomena’s in recent weeks has been the continued rally of gold prices despite improving sharemarkets, likely stoked by concerns over money printing.
Economic outcomes split
German GDP contracted in line with expectations, falling 2.2% for the quarter, with the European powerhouse economy entering a recession. However, a spike in business confidence following staged re-openings bodes well for the recovery.
The Chinese Government dropped their currency, the Yuan, to the lowest rate against the US since 2008, a move that will be highly concerning to the White House who is seeking to devalue the US Dollar in order to stoke exports. Global sensation Tik Tok, which is owned by Chinese giant Bytedance announced a tenfold increase in revenue as numerous celebrities jump onto the platform.
The upcoming global Russell Index rebalancing is likely to be a busy one, with Barron’s reporting that some 200 stocks will move into and out of the benchmark in June, with video conferencing app Zoom and private equity firm KKR key beneficiaries.
Retail recovery on its way?
Upstart payments provider Tyro Payments (ASX: TYR) continued its weekly market updates and showed signs the consumer may be turning a corner. Its sales were down only 18% on the same time last May whilst year-to-date sales were still up 17% on 2019 at $18 billion.
Almond farmer Select Harvest (ASX: SHV) fell 12% after announcing a 13% fall in profit. This was primarily due to weaker prices and the well-publicised increase in water costs, which have since abated.
Credit collection remains an unmastered business in Australia with Collection House (ASX: CLH) and Pioneer Credit (ASX: PNC). However, Credit Corp Ltd (ASX: CCP) rallied on Monday, up 9%. In my view, the whole sector should be avoided as we enter an extremely difficult trading environment.
Finally, Ramsay Healthcare (ASX: RHC) closed their share purchase plan, with the shares now trading at a 23% premium to the issue price.
This daily report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
