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 – Tuesday
It falls apart
Despite widespread geopolitical and societal tension, be it from US protests or the threat of a renewed trade war with China, the market seemed to keep powering through exhibiting the disconnect between Wall Street and Main Street. The S&P 500 was up 0.4%, driven by airlines, Boeing, +4% and the banking sector, with JP Morgan Cash & Co (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) both +1.5%.
It was a similar story in Europe, with the Stoxx 50 up 0.9%, and the ASX which overcame early weakness to spike 1.1%. The ASX was driven by the more cyclical sectors, with cement suppliers Boral Ltd (ASX:BLD) and AdBri (ASX:ABC), both jumping over 7% as the former announced the refinancing of $1.2 billion in debt, staving off any threat of joining the capital raising lines.
Revaluations ahead
Vicinity Centres (ASX:VCX) shocked the market, after entering a trading halt and announcing a $1.4 billion capital raising in order to avoid covenant breaches while also cancelling its dividend. Management announced that just 49% of normal rent had been received, sending the entire sector down. The raising was accompanied by an 11-13% reduction in the next tangible asset value of the company, which owns the popular Chadstone shopping centre and is the first sign that pain from more restrictive Victorian lock-downs may have a bigger impact than expected.
I expect further write-downs as 30 June valuations are completed, perhaps in the ‘vicinity’ of 30% Particularly as the likes of Premier Investments Ltd (ASX:PMV) seek to renegotiate leases across its store network.
Record highs
Australia’s economy continues to benefit from the COVID-19 issues facing Brazil, which is expected to overtake the US for cases and deaths in the coming months. The mass shutdown of minds saw the iron ore price spike to over $100 sending Fortescue Metals Ltd (ASX:FMG) to an all-time high above $15, and BHP Group (ASX:BHP) up another 3%. This has also been supported by an improve in Chinese PMI figures, with Manufacturing printing at 50.6 the third straight month of expansion. The rally has also seen the AUD move over $0.67 after bottoming near $0.55, suggesting our call to hedge positions in March was a prescient one.
Finally, Iress Ltd (ASX:IRE) announced the acquisition of One Vue Holdings Ltd (ASX:OVH) sending the stock up 56%, the software provided for fund managers offering the monopolistic IRE a scaleable growth opportunity.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
