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 morning report – markets in a two-step
Here’s what Australian financial planners and advisers need to know on Thursday morning…
Overseas, Federal Reserve Chairman Jerome Powell’s comments that additional stimulus would be required and an intimation that global shutdowns may need to be reinstated sent the S&P 500 down another 1.5% and the Dow Jones 2.1%.
The Australian market is poised to fall another 1% after staging a remarkable recovery from early losses Wednesday, to finish broadly flat. The Australian economy remains mired in an aggressive trade spat with the Chinese amid threats of dumping of barley, steel and with the potential to destroy our international education sector.
Lew: retail won’t be the same
After Solomon Lew of Premier Investments Limited (ASX: PMV) suggested retail stores will be changed forever due to this crisis, GPT Group (ASX: GPT) continued to fall even as they announced 50% of their shops were open again in May.
An SQM Research report on CBD rental vacancies saw a huge spike in un-rented apartments in Sydney and Melbourne, rising to 13.8% and 7.6%, respectively.
Junior airline Regional Express (ASX: REX) saw an incredible rally up over 30% after announcing it would be attempting to fill the gap left by Virgin Australia (ASX: VAH) by offering up to eight domestic flights within 12 months.
Telstra Corp Ltd (ASX: TLS) continued its voluntary structural separation and is seeking to capitalise on the demand for non-traditional infrastructure assets, floating the sale of its data centre complex in Melbourne, a 3.2-hectare site in Clayton which included 10 buildings. It’s said to be worth at least $400 million.
CBA: talkin’ bout those dividends
The Commonwealth Bank (ASX: CBA) released its earnings report, joining the multi-billion writedown club as it made provisions for a further $1.5 billion in bad debts associated with the COVID-19 crisis. Importantly for investors, these provisions are about being prepared for the worst and ensuring the business has sufficient capital to withstand the eventual weakness.
Having already paid its interim dividend in March there was no comment around the mid-year dividend at this point but management highlighted CBA’s position as one of the most well-capitalised banks in the world with 16.2% in regulatory capital. Cost-cutting continued, falling 1%, as some 240,000 loans received repayment deferrals.
Despite that, CBA reported a $1.3 billion cash profit. The company surprisingly announced that 55% of its investment in the Colonial First State business, which includes superannuation and wealth management products, was sold to private equity firm Kohlberg Kravis Roberts for $1.7 billion as the company continues its exit from the wealth industry. Interestingly, the Count Financial advice business was not included in this sale. The Best ETFs Australia team recently wrote a great story about how to value shares assuming a more reasonable CBA dividend payment.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
