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 – Friday
Friday
It was another bumpy day for investors on Thursday, with the ASX 200 (ASX:XJO) following global markets lower and falling by -2.5% as global infection rates and the threat of the re-imposition of restrictions increased.
Banks (-3.1%) and energy (-4.4%) were hardest hit with the latter once again seeing storage sites near capacity at a time when demand may reduce once again. Yet as mentioned previously, the huge amount of cash on the sidelines, means any dips will be following by strong buying, with the S&P 500 recovering 1.1% overnight.
The banking sector benefited from a further loosening of legislation expected to support more lending, Wells Fargo & Co (NYSE:WFC) rallied 4.8%, with Macquarie Group Ltd (ASX:MQG) also likely to benefit.
Healthcare bucked the market trend with CSL Ltd (ASX:CSL) adding 0.6% after announcing the $450 million acquisition of a late stage gene therapy business and ResMed (ASX:RMD) hitting an all-time high as its pivot into the production of ventilators continues to pay dividends.
Still flying?
Qantas Ltd (ASX:QAN) announced a capital raising and successfully collected $1.6 billion from institutional investors. The issue price of $3.65 was just a 12% discount on the last traded price, which can only been seen as a coup for management, despite noting just 4 weeks ago that they would not need any capital.
As part of the announcement the company confirmed that international flights would not return to normal until July 2021 and that a further 6,000 jobs would be lost as they seek to cut $1 billion in costs. Opportunistic is the best word for this raising. In my view the discount was insufficient for the heightened risk of the business model post COVID.
The retail world once again remains strong with online marketplace Redbubble Ltd (ASX:RBL) bouncing 25% after confirmed that quarter to date revenue had increased 109% and earnings just over 100% to $11.9 million.
Similarly, Athlete’s Foot owner Accent Group Ltd (ASX:AX1) rallied 9.5% after confirming its earnings would be 10% higher following an 150% hike in digital sales in June. Whilst great news, walking around the Melbourne CBD I can’t escape the feeling that less people will be buying shoes when the Job Keeper program ends, and we understand the real implications of this pandemic.
Australia looking rosy…..
The IMF has upgraded their global growth forecasts for the rest of 2020, predicting the Australian economy will contract by 4.5%, less than the 6.7% tipped earlier. Whilst far better than the -8% in the US and -10% in the UK, it’s yet to be seen what impact China’s renegotiation will have on our economy.
The global job markets remain under pressure with Australia confirming a 43% reduction in job vacancies. Unfortunately not because the jobs were being taken, but due to them simply not existing anymore. Similarly, the first-time jobless claims in the US remained elevated at 1.5 million for the week ended June 20.
Neither bodes well for the domestic property market and companies like Lend Lease (ASX:LLC) or Mirvac (ASX:MVC) particularly after apartments listed for sale increased close to 40%, which in my view, will put pressure on prices. It only takes one forced seller to drop the value of an entire building.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
