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.
Earnings season update: REA, RBL, GPT
REA Group (ASX:REA) – The property website heavyweight posted its full-year result last Friday, with the result coming in slightly better-than-expected, allowing the shares to close the day up almost 2%%. REA’s was a good result in a deteriorating market: headline net profit fell 9%, to $268.9 million, but was above the expected $264.4 million. Despite what was a market of lower listing volumes, REA Group benefited from a 13% increase in Australian residential business and the inclusion of iProperty revenue. The company says COVID-19 will continue to create volatility and affect listing volumes. Price increases, which were to have taken place on 1 July, have been deferred. Looking forward, the speed at which any property market recovery may take place will largely ride on how quickly consumer confidence and auction clearance rates are restored, and whether government stimulus measures, if any, can help to prop up the property market and keep volumes from dropping.
Red Bubble (ASX:RBL) – The online retailer released a bumper business update, which cause its shares to rise 17.1% on the day. Having ridden the COVID-19 e-commerce wave, demand for RBL’s online products was strong; in particular, the company reported a whopping $26 million generated from the sale of face masks from its launch at the end of April until 31 July. July revenue alone was up 132%, to $49 million on a constant-currency basis. The company noted that the shift to online shopping resulted in year-on-year growth across all core geographies and product categories – all thanks to the sudden increase in shoppers stuck at home under lockdown laws, demanding anything from face masks to stationery. RBL is due to release its full-year results on the 21 August. Shares are up 223% from their COVID Crash low, on March 23.
GPT Group (ASX:GPT) – GPT announced a massive fall in profits, falling to a net loss of $519.1 million for the 2020 financial year. The majority of the reduction was the result of independent reviews of its various property assets, with the total value falling $711.3 million. The retail assets were the hardest-hit, falling 10.5% due to the impacts of rent waivers and uncertainty on rent collections. The portfolio includes the well-known Melbourne Central and Highpoint Shopping Centres. Funds from operations or FFO, which is equivalent to rental payments, fell 23.3% for the year, down to $244.5 million, with 99% paid out to investors via a 9.3 cent per unit distribution; a 30% cut on 2019. Despite the result, GPT management was upbeat, highlighting great occupancy in its office and logistics assets along with $164 million in recent acquisitions in the latter. Capitalisation rates, which are used to assess the value of each asset, remained flat, at 4.85% for offices, 5.29% for Logistics and 5.04% for retail. We would suggest, however, that the retail rate is likely to blow out post COVID-19 should vacancies increase.
