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
It’s a blowout, debt to hit $860 billion, dollar rallies
Treasurer Frydenberg provided his long-awaited budget update, which was just that an update, offering little in the way of guidance into the future. The Government are predicting unemployment will peak at 9.25% across the country, with ballooning deficits adding $250 billion to the debt pile.
The reaction? Market’s rallied, with the ASX 200 (ASX:XJO) finished up 0.3%, along with the Australian dollar, which moved to $0.71 US cents. The rally was driven by the property sector (+1.9%) and retailers (1.3%) behind Scentre Group (ASX:SCG) and Wesfarmer’s Ltd (ASX:WES) which added 3.3% and 1.0% respectively.
Overseas markets were mixed, with the week’s tech gains lost in a single session as the Nasdaq fell 2.3% on the back of weakness in Amazon Inc. (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) both down around 4%; hit by an unexpected spike in unemployment benefits.
European markets held onto gains, the Eurostoxx adding 0.03%, behind a strong earnings report from consumer goods leader Unilever NV (AMS:UNA), as profit increased 3.8% on stronger hygiene sales.
Bringing back the fizz
Coca-Cola Amatil Ltd (ASX:CCL) was one of the day’s leaders, adding 5.4% after announcing an improvement in sales in June. The loosening of restrictions saw the final quarter of the financial year down just 23% on 2019 and a focus on the ‘disciplined management of costs’ going forward.
Management also surprised with a potential $190 million write-down on their Indonesian business. Desperate operating in what should be a recession proof business, CCL has barely recovered its losses from March and remains one to avoid given its challenged growth profile.
Newcrest Mining Ltd (ASX:NCM) moved 1.9% higher after delivering a 7% increase in quarterly gold production, to 573k ounces, but more importantly benefiting from the US dollar price hitting a near decade high of $1,875; that equates to $2,633 in Aussie.
With a mining cost of around $1,339 the company is making solid margins, hence the growing attractiveness of the mining sector for dividends.
Over the cliff
Concerns abound for the impending economic cliff, with the Government’s JobKeeper and JobSeeker policies delaying the inevitable until at least next year. Whilst many experts are suggesting Australia’s stimulus of around ~16% of GDP is excessive, they seem to forget that our economy is one based on immigration and commodities, with limited expertise in the ‘new economy.
Growing vacancy rates in both commercial and residential properties are placing pressure on loan repayments, at the same time that hundreds of thousands of mortgages are on pause. The growing issue has some banking analysts, including Citi, suggesting the Commonwealth Bank of Australia Ltd (ASX:CBA) and Suncorp Group Ltd (ASX:SUN) may choose not to pay a dividend in August; it seems a reasonable time to be underweight banks given the uncertainty.
Ending on a positive note, market lightning rod Tesla Inc (NASDAQ:TSLA) may be nearing an entry into the S&P 500 index, adding 5% to its $300 billion valuation this week after beating analyst estimates delivering a rare quarterly profit of $105 million on revenue of $5.15 billion; the share price is up close to 300% this year.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
