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 – Monday
Counting down……
It was another strong finish for the ASX 200 on Friday, adding 0.4% and finishing the week up 2.6% on the back of rally in both the healthcare and communications sectors. CSL Ltd (ASX:CSL), up 2.7%, and Telstra Corporation Ltd (ASX:TLS), 4.0%, were the standouts. The market continues to improve despite the worsening COVID-19 case numbers in Victoria and the US which seem likely to result in a second round of shutdown measures.
The US market was shut for 4th of July celebrations, with President Trump ramping up the rhetoric as his re-election campaign begins in earnest. The Eurostoxx 600 eased slightly, down 0.8%, however food deliver business, Delivery Hero (DE:DHER) added 4.7% as orders continue to surge. Retail sales also delivered once again, improving 16.9% in May, with clothes (+130%) and café spending (+30%) the biggest beneficiaries of easing lockdowns.
Cuts, cuts and more cuts
Cement producer AdBri Ltd (ABC), formerly Adelaide Brighton, fell by over 25% after Alcoa Corp (NYSE:AA) announced the cancellation of its contract to purchase $70 million of lime from ABC each year. For those seeking an exposure to recovering economy and infrastructure spend, I prefer the less housing reliant Boral Ltd (ASX:BLD).
PNG-based oil producer Oil Search Ltd (ASX:OSH) was the latest company to announce widespread staff cuts, reducing their employee numbers by a staggering 34% this week, as they seek to cut costs ahead of what is likely to be an earnings season full of write-downs for the sector. On the positive side, Cochlear Ltd (ASX:COH) received US FDA approval for four new in-ear products, expanding market opportunities in the US and Europe, the share price was up 5.9%. As highlighted earlier in the week, Facebook Inc’s (NASDAQ:FB) advertising dominance is unlikely to be impacted by the ‘boycotts’ by some major consumer brands with CEO Mark Zuckerberg channelling Arnold Schwarzenegger by suggesting ‘they’ll be back’.
Where to from here?
With the new financial year starting on positive footing, it’s worth taking stock of what has just passed. If there is one lesson I’m taking away from the COVID-19 crisis and incredible recovery, it’s that you can’t pick the top or bottom of the market and trying to can be incredibly costly. For instance, those investors who capitulated in March and missed just the five best trading days since, would be close to 40% behind the benchmark. Importantly, you don’t need to time the market to boost your returns, you simply need capital available to deploy when everyone else is selling.
Our clients benefited heavily from a number of simple recommendations provided as the market bottomed on 23 March solidifying their out-performance and ensuring positive returns for the financial year. Whilst confidence may be improving as the economy returns to normal, there is substantially more risk in all asset markets today than just a few short months ago, now is not the time to be complacent or taking undue risk amid the fear of missing out.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
