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 Tuesday Morning Report – What You Need To Know
Australian share market is expected to open higher on Tuesday with the SPI futures pointing to a positive open. Here’s what’s making headlines.
With May Day holidays around the world, pent up selling hit the Chinese (-4.2%) and European sharemarkets (-4.2%) on Monday. The ASX200 staged another intra-day recovery, bouncing back from over 2% down to finish the day 1.5% higher.
Shares of Buy Now Pay Later or modern-day layby provider Afterpay Ltd (ASX: APT) shot as much as 35% higher at one stage as Chinese internet giant Tencent announced it had acquired a 5% stake in the business. The investment is expected to assist an expansion into China, the announcement sending the stock near all-time highs even as an expected spike in bad debts appears on the horizon.
Trade War Redux
Increasing rhetoric from the White House regarding the potential for more tariffs in response to China’s poor communication around the Coronavirus’ source is coming at the worst possible time.
Hong Kong experienced its worst GDP result on record, falling 8.9% for the quarter and some are now suggesting we are only early in this initial sell-off. Only time will tell. The S&P 500 was able to post a gain of 0.4% overnight as oil prices showed signs of settling with a specialist at Bank of America suggesting equities market returns over the next decade will likely average a much lower 6% per annum.
Buffett’s Berkshire Update
Warren Buffett and his business Berkshire Hathaway are well-known for capitalising on the financial market stress caused by the GFC, making sweetheart deals with a number of companies. There was no such assistance this quarter.
In fact, Berkshire reported that the value of their equity portfolio had fallen 27%, sending the shares down 19% for the year to date. The first-quarter loss of $49 billion coincided with Buffett selling all four of his US airline holdings based on a very difficult outlook.
However, the company still has some $137 billion in cash on its balance sheet. In Australia, Westpac Banking Group (ASX: WBC) followed ANZ Banking Group’s (ASX: ANZ) lead in deferring its dividend, reporting a 70% fall in cash earnings and a further $1.9 billion in bad debt provisions due to COVID-19.
This update was written by Drew Meredith, Director of Wattle Partners.
