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 planning daily report – ASX to open lower
The announcement of some success with Moderna’s COVID-19 trials revealed yesterday appears to be a case of too much too soon, with most global markets giving back gains as the results were questioned. The Dow Jones and S&P 500 fell by over 1% each with a similar story in Europe, as the STOXX 600 balked at some $546 billion in stimulus, falling 0.4%.
The European banks remain under incredible pressure, Banco Santander (-5.5%) and Bilbao (-4.5%) bearing the brunt of the near-complete tourism shutdown across Western Europe. Personally, I expect these conditions to drag on for an extended period of time, with the impacts on many businesses from retail, travel and even financial services, still yet to be fully understood. If there has ever been a better time for ‘active’ stock selection it would be now.
The ASX gained 1.8% on Tuesday but is set to open lower once again.
What inflation?
The Japanese economy entered another recession, contracting 3.4% for the quarter following a 7.3% contraction in December as its sales tax was introduced. In my view, the economy remains a case in point of what the rest of the world should expect in the years to come, with near unlimited monetary and fiscal policy doing little for inflation, but most importantly contributing to full, albeit, questionable employment levels.
The US Budget Office has estimated a 5.6% contraction in the June quarter, but upgraded the 2021 expectations to 4.2%. These seem remain reliant on optimistic assumptions around the opening of economies and the resumption of normal trade.
One thing Australian investors need to be increasingly wary of is the rebounding Australian dollar, which rallied 20% after a jump in commodity prices and our apparent success in slowing COVID-19.
Results
Strong returns are on offer for those able to filter through the ‘death valley’ of retail businesses. Baby Bunting, a business I am very familiar with, reported strong sales growth amid the self-isolation restrictions, increasing 13.2% year-to-date and seeing their share of online sales move from 12.4% to 22.4% of their total in March.
Baby Bunting is investing in an online fulfillment hub, similar to that offered by Qube in NSW. To me, this appears to be a sign of weakness for the big box landlords.
One of Australia’s tech darlings, Technology One, reported a record 11th straight year of record revenue, with recurring annual revenue increasing 33% to $110 million and management increasing the dividend by 10% as their software as a service (SaaS) platform expands into more councils and other enterprises.
Challenger financial services platform provider Powerwrap (PWL) announced a deal with Qualis Capital to bring between 50 and 100 new alternative investment strategies to market.
This daily report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
