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’s morning report – ASX to open higher, gold at record levels, US-China trade talks
ASX to open higher, gold at record levels, US-China trade talks
The ASX 200 (XJO:ASX) finished down another 0.7% on Wednesday, pushed lower by healthcare (-1.7%), industrials (-1.5%) and consumer staples (-1.2%). Cochlear Ltd (ASX:COH) was the biggest detractor, falling 2.8% as investors once again flocked to the mining sector as gold prices maintained all-time highs above USD$2,000.
It is becoming apparent that the Chinese and their insatiable demand for Australian commodities may once again cushion the blow to our economy. Chinese exports from Australia reached close to 50% in June with investors having identified the trend and pinning dividend hopes on the likes of BHP Group Ltd (ASX:BHP) and Fortescue Metals Group Ltd (ASX:FMG).
In an income starved world, this strategy has some merit, whilst keeping in mind these are the most cyclical of businesses. The US market continued its recovery, the S&P 500 adding 0.6% and nearing an all-time high, after the White House scheduled a catch up meeting with the Chinese regarding their trade deal and it became more likely that a second round of stimulus would be agreed before the end of the week.
The happiest place on earth?
One of my personal favourites, The Walt Disney Co. (NYSE:DIS), rallied 8.8% overnight after announcing better than expected subscribers on its Disney+ platform; it seems families stuck at home around the world are turning to Toy Story, Cars and Star Wars to keep the kids entertained.
Despite beating internal expectations that saw streaming subscribers hit 60.5 million, profit fell 147% for the business, as its theme parks (85% revenue decline), media movie studios (55% decline) and media networks (2%) all declined in unison.
Things are, however, looking up with the NBA basketball and MLB baseball seasons restarting, benefitting their ESPN sports channel, theme parks slowing re-opening and movie theatres expected to restart at the end of 2020. In my view, the pandemic is offering a buying opportunity for a world-class content and advertising business.
Back at home, all is not looking well
The buy-now-pay-later sector has been on fire lately, with those who missed out either cursing themselves or flagging concerns about the lack of regulation. It seems that ASIC has their eyes on the sector, but have been hamstrung by the pandemic, amid concerns about over-commitment, penalty and missed payment fees heaped onto unwitting customers.
In a similar vein, brokers are increasing concerned about the major banks ability to deliver competitive returns for investors, with some 10-15% of consumer and small business loans deferred along with $274 billion residential mortgages; I’m not sure that most borrowers on ‘holiday’ know their interest is still compounding and repayments have simply been delayed.
Telstra Corporation Ltd (ASX:TLS) announced another asset sale, bringing the total to $1.5 billion, after passing it’s Victorian data centre to Centuria on a 30 year lease with a price of $416.7 million; the stock fell 2.3%.
