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 – Wednesday
The ASX 200 is likely to start trading lower on Wednesday, according to futures contracts in Sydney. Here’s everything that investors like you need to know about the local market on Wednesday.
Think twice
The daily grind of volatile markets continued on Tuesday, as the ASX succumbed to aggressive rhetoric from the Chinese government on trade issues and a spike in infections in Asia hit improving confidence.
The FTSE, +0.9%, bucked the trend as Vodafone delivered strong numbers and maintained its dividend. However, US markets continued to weaken, with both the S&P 500 and Nasdaq down over 2% overnight — all 11 sectors fell. This came as inflation data indicated the 0.8% fall in April was the worst in over a decade. This will lead to a weak opening in Australia.
On a somewhat more positive tone, Morningstar released a report that some 70% of the funds they followed who have an ESG or Environmental, Social and Governance policy, had outperformed their peers amid the volatility — talk about active management!
Divergent reports
The divergence between corporate performance continues to increase, with consumer staples like Woolworths and technology companies like Logitech charging ahead on weaker days. The former released a new bond issue for 5 years at just 1.6% over the bank bill rate in a gamble that investors will remain desperate for income.
Surveys of the banking sector, including the Commonwealth Bank and National Australia Bank, indicated that there has been a 35% reduction in branch visits in April, which does not bode well for property owners or similar businesses, including Flight Centre, who have large store networks at a time when consumers are moving online.
Global market action
Uber launched an aggressive takeover bid for its competitor Grub Hub (GRUB), sending the share price of the latter up 30%. After strong progress on its treatment for COVID-19 patients, Mesoblast is once again seeking to tap shareholders for more capital, many are wary of a company that has raised over $500 million in recent years but delivered nothing but losses (some $700 million).
India’s largest airline, Indigo, is considering a bid for Virgin and Australian retailers like Harvey Norman and JB Hi-Fi are expected to benefit from NZ’s more aggressive reopening strategy. It doesn’t look great for Premier Investments, with global sales down 99% for the quarter, yet online sales increased by the same amount and management noted some 70% of stores are now coming up for lease, which could be devastating for shopping centre and retail landlords.
Kogan (KGN) was another beneficiary of the move to online spending, reporting 139,000 new active customers, taking their total to 1.948 million and reporting a 100% increase in profit. Finally, Unibail Rodamco Westfield cut its interim distribution as did building products supplier CSR Limited despite reporting just a 6% fall in revenue.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
