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 – Market to open strongly as tech rally continues
Retailers at all-time highs, market to open strongly as tech rally continues
The ASX 200 (ASX:XJO) fell another 0.8% today, as weaker than expected earnings result and more pessimistic view from the US Federal Reserve impacted sentiment. Most weakness came from the healthcare and financial sectors, representing a substantial portion of the market, however, the likes of ASX Ltd (ASX:ASX), JB Hi-Fi Ltd (ASX:JBH) and Afterpay Ltd (ASX:APT) all reached all-time highs. Australian businesses leaders are becoming increasingly vocal about border closures using reporting season to air their concerns for the economy. The major reports for the day were as follows:
- Afterpay Ltd (ASX:APT): Increased their earnings guidance, just a week before their formal report, expecting a 100% increase to $44 million and limited credit losses; shares finished 6.8% higher.
- Comment: Solid update, shares remain overvalued.
- Qantas Ltd (ASX:QAN): Announced a net loss of $2.7 billion but remains well capitalised. Management expect full domestic capacity by FY22 but just 50% for international travel; time will tell whether even this is too hopeful.
- Comment: Fingers crossed for vaccine.
- Santos Ltd (ASX:STO):Revenue fell 16% to $1.6 billion, profit halved to $212 million and the dividend was cut by 65% as low oil prices began to hit the business. Shares finished 5.3% lower. Comment: Is this the end for energy?
- ASX Ltd (ASX:ASX): Shares added 2.7% after reporting revenue growth of 8.6% due to greater listing and trading activity along with data service subscriptions. Profit improved 2.7% and the dividend was 7.2% higher at 8.2 cps.
- Comment: Beneficiary of volatility and capital raisings.
- Origin Energy (ASX:ORG): Reported a 90%+ fall in profit to $83 million after writing down APLNG and onerous purchase contracts to reflect more accurate oil price assumptions; shares fell 6.1%.
- Comment: Tough road ahead.
- Coca-Cola Amatil Ltd (ASX:CCL): Reported a 9.2% fall in revenue to $2.185 billion as bushfires and COVID-19, profit similar 35% lower to $112 million. Dividend was cut but at least paid. Shares finished 4.6% higher.
- Comment: Perhaps a defensive value opportunity.
- IRESS Ltd (ASX:IRE): Provider of the popular XPLAN financial advice platform, reported strong Australian revenue growth of 12%, but profit falling 3% as a number of acquisition boosted costs; shares finished 4.3% lower.
- Comment: Disruption increase in the sector but monopoly pricing power.
Wesfarmer’s Ltd (ASX:WES) – Officeworks and Bunnings booming but is a spending cliff ahead?
WES flagged a 10.5% increase in revenue from continuing operations (i.e. excluding Coles) and an 8.2% increase in net profit to $2.08bn, a slight beat to expectations of $2.0bn.
The highlight was a strong dividend of 0.77 cents per share, down just 1 cent from 2019, along with an 18 cent per share special payment from the sale of 10% in Coles Group Ltd (ASX:COL).
By and large WES remains a shell for the dominant Bunning’s franchise, which saw revenue increase another 13.9% to $15bn and some 50% of the entire group.
Second half sales were particularly strong up 245 in the second half, however, management have flagged the potential for a spending cliff as stimulus payments reduce towards the end of 2020.
As expected, Officeworks delivered 20.4% sales growth and a 14% increase in earnings to $197 million as the population looked to set up home offices, upgrading everything from computers to office chairs.
The now combined Target and Kmart division hides the weak performance of the former, sales down 2.6%, with Kmart continue to deliver higher sales, 5.4%, but a fall in earnings due to store closures.
Summary: Great result but some uncertainty ahead in 2021.
Alibaba delivers, Nasdaq still breaching highs, trade talks ahead
The hit another all-time high adding 1.1% overnight, ensuring a strong finish to the week for Australia. Apple Inc. (NASDAQ:AAPL) has retained its $2 trillion market cap whilst Telsa Inc. (NASDAQ:TSLA) hit $2,000 per share.
The highlight, however, was Chinese market place Alibaba (NYSE:BABA) which reported that revenue growth had reach pre-pandemic levels, up 34% for the quarter.
China’s most valuable company is facing increasing competition but continues to deliver.
Ant Financial, Alibaba’s banking arm, reported a 300% increase in profit to $1.3 billion in the quarter ahead of its massive float later this year.
European markets finished weaker across the board, Eurostoxx 50 down 1.3%, amid rising COVID-19 cases.
