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 – Thursday
Positive footing, don’t say the V word
Most global markets started the financial year on a positive note, with the ASX 200 (ASX:XJO) adding 0.6% despite reports that just 30% of jobs lost during the COVID-19 crisis have been replaced.
US markets will provide a positive lead this morning, the NASDAQ pushing to all-time highs, up 0.9%, and the S&P 500 0.5%, with FedEx Corporation (NYSE:FDX) the leader improving 11%. The company announced it had moved through the crisis relatively unscathed with revenue slightly below 2019 as the cancellation of domestic flights meant more packages ended up on FedEx planes.
European markets were generally weaker despite Pfizer (NYSE:PFE) announcing some success in the creation of antibodies from it COVID-19 treatment, whilst PMI, which offer a leading indicator for the economy improved across the board, Germany improving to 45 from 36 prior, France entering expansion again at 52 points.
Signs of a return to normal continued, with German retail sales improving 13.9% for the month, however talk has now moved towards the risk of a no-deal Brexit.
First day of reporting
Despite reporting season not expected to begin for several weeks, a number of companies provided interim updates. Lend Lease (ASX:LLC) the least surprising after it cancelled the dividend from its operating company, flagging a loss of $230-$340 million and reported a devaluation in their managed property assets of just $130 million on a $4 billion portfolio; I’d suggest there is a great deal more pain to come due to the companies large holdings of retail and residential property the stock fell 1.3%.
Telstra Corporation ltd (ASX:TLS) continued its simplification, announcing the sale of its $400 million data centre in Clayton, with the normal players including Charter Hall Group (ASX:CHC) all interested.
Home Consortium Ltd (ASX:HMC) entered a trading halt after announcing a capital raising of $170 million to purchase three Woolworth’s anchored tenancies in addition to an aged care facility; interestingly, the aged care facility is owned by the companies own CEO, meaning it will need to be approved by shareholders to ensure sufficient due diligence was completed. HMC’s dividend will go ahead.
Rotation, rotation, rotation
Webjet Ltd (ASX:WEB) quietly raised a further $136 million in debt via Singapore markets in the form of a convertible note, adding 7.5%, despite a worsening outlook as Victoria enters another lockdown.
WiseTech Global Ltd (ASX:WTC) is the target of another short attack, falling 4.1% amid growing concerns of the underlying profitability of the companies acquired as part of its roll up strategy; I’ve seen this play out before and suggest investors tend to avoid these companies until there is more certainty.
The 2019-20 financial year will be remembered as the time when market capitalisation shifted from old fashioned business models to those of the future, with billions shifting out of energy, banks and property, into healthcare, IT and staples businesses, the question for investors is which trend is sustainable.
In my view, IT and communications remain the most important part of portfolios post COVID, as reflected by the top performing companies in 2020 being Mercado Libre (NASDAQ:MELI) up 101%, Tesla Inc. (NASDAQ:TSLA) up 100%, Nvidia (NASDAQ:NVDA), 44%, Paypal (NASDAQ:PYPL), 82% and Apple Inc. (NASDAQ:AAPL), 43%.
The Australian story was similar, Afterpay Ltd (ASX:APT) adding 143%, and the major banks down 35% on average.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
