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.
Lowe might not go as high
While the Reserve Bank of Australia, as expected, lifted the country’s official cash rate by 25 basis points to 3.6 per cent, in the tenth consecutive hike, the semantics of Governor Philip Lowe’s policy statement galvanised the market. A slight change of wording in the crucial final paragraph, which discarded a specific reference to “further increases” in interest rates, was construed by investors as a sign that the RBA might leave rates steady after one more rise.
The benchmark S&P/ASX200 index surged 41 points in the space of two minutes after the central bank’s statement dropped. The index finished Tuesday up 36.1 points, or 0.5 per cent, at 7,364.7, its highest level in two weeks, while the broader All Ordinaries index rose 36.9 points, also 0.5 per cent, to 7,562.6.
Among the mining heavyweights, BHP retraced 46 cents, or 1 per cent, to $47.93; Rio Tinto lost 37 cents, or 0.3 per cent, to $125.00; but Fortescue Metals advanced 32 cents, or 1.4 per cent, to $22.52. Gold major Newcrest rose 12 cents, or 0.5 per cent, to $24.03.
In lithium, Allkem slipped 19 cents, or 1.6 per cent, to $12.08, while fellow producer Pilbara Minerals advanced 6 cents, or 1.5 per cent, to $4.16. Mineral Resources, which mines iron ore as well as lithium, dropped 38 cents, or 0.4 per cent, to $88.73, with IGO, which produces nickel and lithium, retreating 5 cents, or 0.4 per cent, to $13.75. Among the lithium project developers, Core Lithium gave up 1.5 cents, or 1.5 per cent, to $1.00; Lake Resources eased 2 cents, or 3.1 per cent, to 62 cents; Liontown Resources surrendered 6.5 cents, or 3.9 per cent, to $1.66; and Piedmont Lithium fell 3.5 cents, or 3.7 per cent, to 92 cents.
In coal, Whitehaven Coal eased 2 cents, or 0.3 per cent, to $7.31; New Hope Corporation gained 4 cents, or 0.7 per cent, to $5.65; Coronado Global Resources eased 4 cents, or 2.1 per cent, to $1.86; Yancoal Australia surged 18 cents, or 2.9 per cent, to $6.32; and Stanmore Resources advanced 2 cents, or 0.6 per cent, to $3.52.
Rare earths producer Lynas Rare Earths slid 8 cents, or 1.1 per cent, to $7.37, while copper leader Sandfire Resources retreated 5 cents, or 0.8 per cent, to $5.98.
Funerals bring life to market
Westpac improved 28 cents, or 1.3 per cent, to $22.37; ANZ gained 30 cents, or 1.2 per cent, to $24.50, National Australia Bank was up 23 cents, or 0.8 per cent, to $29.71; while Commonwealth Bank rose 30 cents, or 0.3 per cent, to $98.90. Investment bank Macquarie Group added $3.01, or 1.6 per cent, to $193, while health insurer Medibank Private was up 8 cents, or 2.4 per cent, to $3.39 and global insurance heavyweight QBE closed 34 cents, or 2.3 per cent, higher at $15.27.
Funerals company InvoCare rocketed $3.13, or 35 per cent, higher to $12.08, as private equity firm TPG tabled a $1.8 billion takeover bid pitched at $12.65 a share, but the market is clearly waiting on further details. TPG has already bought 17.8 per cent of InvoCare. The reaction to the takeover offer took the share price back to where it was in May 2022: before the offer, it was trading at $8.89.
Software company Bravura Solutions was more than halved in value, plunging 41 cents to 39 cents in a 51 per cent fall, as it returned to trading after announcing a share issue at a 53 per cent discount on its previous trading price, and investors voted out of the company.
Department store chain Myer surged 8.5 cents, or 9.8 per cent, to 95.5 cents.
US mulls higher-for-longer
In the US overnight, markets reacted poorly to Federal Reserve chair Jerome Powell’s remarks in hearings at Congress in which he suggested that interest rates may need to go higher for longer, fuelling fears of a potentially larger rate hike at the Fed’s next meeting. The 30-stock Dow Jones Industrial Average dropped 574.98 points, or 1.7 per cent, to close at 32,856.46. The S&P 500 lost 62 points, or 1.5 per cent, to end the day at 3,986.37, and the tech-heavy Nasdaq Composite index shed 145.4 points, or 1.3 per cent, to settle at 11,530.33.
In the bond market, the US 10-year yield eased slightly to 3.97 per cent, while the more rate-sensitive 2-year yield surged through the 5 per cent mark to end at 5.015 per cent – its first foray above 5 per cent since 2007.
In the commodities market, gold fell US$32.99, or 1.8 per cent, to US$1,813.40, the global benchmark Brent crude oil grade sank US$3.14, or 3.6 per cent, to US$83.04 cents a barrel and West Texas Intermediate crude retreated US$2.88, also 3.6 per cent, to US$77.58 a barrel.
The Australian dollar is buying 65.86 US cents this morning, a slide of 1.25 cents as the prospect of higher-for-longer rates marks the return of “King Greenback.”
