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
“It will get worse before it gets better”, markets retreat amid spiking cases
The ASX 200 (ASX:XJO) finished off its lows for the day, falling 1.3%, as both Victoria and several US states hit record COVID-19 case levels, denting market sentiment.
BHP Group Ltd (ASX:BHP) and CSL Ltd (ASX:CSL) were the cause of half the fall, down 3.4% and 3.6% respectively; as the largest holdings in the index global investors moving to a risk off position drove the fall.
US markets bucked the trend, the S&P 500 finishing 0.6% higher, as the White House announced their intention to extend their own ‘JobKeeper‘ stimulus.
Geopolitical risk continues to accelerate with the US Government ordering the closure of the Chinese Consulate in Houston stoking a move back to more defensive businesses, like drug maker Pfizer Inc. (NYSE:PFE).
The export-driven Euro Stoxx 50 weakened, down 1.0%%, with carmakers and consumer facing businesses, like travel booking software Amadeus IT Group SA (BME:AMS) falling 3.4%, among the hardest hit.
In a sign of how powerful economic shutdowns can be, it’s been estimated that Victoria’s current restrictions could see September GDP growth contract by as much as 0.75%.
True to form
QBE Insurance Group Ltd (ASX:QBE) stayed true to form, announcing a $750 million loss for the financial year citing a number of complex reasons ranging from ‘adverse catastrophe experience‘ for $60 million adverse prior accident claims, for $120 million.
In my view, insurance companies should be placed alongside airlines as the worst sectors for investors, the combination of unexpected events and the need to generate ever higher returns from customer premiums mean it is one sector to avoid.
As a regular customer of Baby Bunting Ltd (ASX:BBN) I wasn’t surprised to see revenue increase 11% to $405 million for the year, nor the 39% increase in online sales.
Interestingly, online sales represent just 14% of total sales for the businesses, a statistic I highlighted previously in this column.
Compare this to say iRobot Corporation (NASDAQ:IRBT) the maker of the popular Roomba vacuum, where 70% of sales came from e-commerce.
Bigger than Korea
Microsoft (NASDAQ:MSFT) was the latest business to report earnings, delivering a 13% increase in revenue for the quarter, to $38 billion, above analyst estimates.
The companies Intelligent Cloud business continued its stellar recent run, adding 17% in revenue, whilst the Azure platform which drives the new Office 365 and Sharepoint platforms slowed slightly, growing 47% from 59% in the previous quarter; still a solid result.
Microsoft’s incredible performance has seen the company add $800 billion in market cap, to $1.6 trillion, in the last three years and is now worth the equivalent of the entire Korean stock market.
At a time when the profits of most companies are highly uncertain, the near certainty of Microsoft’s growth trajectory is a welcome relief.
Finally, ex-Macquarie toll road owner Atlas Arteria (ASX:ALX) provided an update on traffic numbers, with a better than expected 51.2% fall on the same quarter of last year.
Importantly, the French and German assets were off just 15% and 5% on 2019 comparable; in my view, toll roads offer a more attractive exposure to the recovery than other infrastructure assets like airports.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
