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
Same, same but different
Another day, another global technology rally sending markets higher. The S&P 500 and Dow Jones both improved 0.6% but it was the NASDAQ driving market returns improving 1.1% as both Adobe Inc. (NASDAQ:ADBE) and Amazon Inc. (NASDAQ:AMZN) hit new all-time highs. Despite overnight moves, market breadth is increasing once again, meaning more companies are now driving the market higher than before.
The ASX 200 (ASX:XJO) climbed a similar wall of rally, offsetting initial gains to finish up 1.9 points of less than 0.1%. It will open higher on Tuesday also. Just 3 of the 11 sectors improved with materials up 1.7% as the gold price tested a long-term resistance level and 8-year high of USD $1.750. Newcrest Mining Ltd (ASX:NCM) improved 3.7% as a result. With the AUD now trading around US $0.68c and heightened tensions with China, I’d suggest the risk is now to the downside and a currency hedge may be more appropriate.
Navigating the inevitable
The announcement that Victorian restrictions would continue until at least mid-July is likely to send an ever-increasing number of businesses into administration; travel stocks reacted poorly to the news. Webjet Ltd (ASX:WEB) fell 5% on the news as did Qantas Ltd (ASX:QAN), whilst Tuesday should see more news on the sale and recapitalization of Virgin Airline Holdings Ltd (ASX:VAH).
The building sector received a vote of confidence with James Hardie Ltd (ASX:JHX) adding 7.3% after lifting its guidance for the first half; Boral Ltd (ASX:BLD) shared in the spoils increasing 3%. In my view BLD offers a unique opportunity to benefit from both the economy recovery and fiscal stimulus already announcement, with the resignation of CEO Mike Kane (LINK) potentially opening the prospect of asset sales and acquisitions in the second half of 2020. Challenger Group Ltd (ASX:CGF) unexpectedly launched a $300 million capital raising, with just $30 million allocated to retail investors as they seek to shore up their regulated capital buffer.
Time to pivot?
With the global technology sector moving ever higher due to businesses ‘pivoting’ to online services or generally seeking efficiency, the Australian economy seems to need a pivot of its own. Recent rhetoric with China regarding everything from iron ore and education to travel and beef suggest our reliance on the fastest growing economy is in need of review. But where to from here, only time will tell whether we are able to restart our own manufacturing capabilities or become global leaders in other technology.
One such leader has been Seek Ltd (ASX:SEK) which has rallied 30% since it’s March lows. Management announced a potential $230 million write-down of their Mexican and Brazilian businesses in light of weaker sales revenue, whilst June advertising was still down some 40-50% on 2019. Despite this headwind, the share price ended in positive territory for the day.
Finally, toll road operator Transurban Group (ASX:TCL) who are in the midst of a Supreme Court case over their Westgate Tunnel cut their dividend by close to 50% to 16 cents even as tolls began reapplying and traffic volumes are on the improve.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
