Multi Currency Portfolio in March


Multi Currency portfolios in March we slammed.

 

Attached are the five updated 2007 multi currency portfolios and their performance since November 1, 2006.

 

Portfolio 2007  Dec 29 Jan 30 Feb 6 Feb 26 March 8
Swiss Samba 8.10% 10.18% 13.83%  20.49% 8.21%
Dollar Neutral 7.94% 12.63%   13.62% 20.28% 11.26%
Emerging Market  15.11% 14.83% 17.46% 19.61% 1.27%
Dollar Short 12.91%  9.71% 12.50% 18.17% 12.30%
Green  34.77% 50.08%  63.04% 86.22% 67.26%

 

The continual growth since these portfolios started finally came to a screeching halt. All the portfolios still look good except the emerging markets. This is the portfolio I especially want to focus on in this update because it is acting almost exactly as it did at exactly this time last year.   When we changed portfolios in November 2006, the Asian Emerging Portfolio was tweaked and renamed the Emerging Markets Portfolio.

 

This Emerging Market Portfolio’s performance may be showing an important pattern very similar to the Asian Portfolio’s pattern of performance last year.

 

First let’s compare the Asian emerging fund of last year with the emerging markets fund of this year.

 

Last year’s Asian Emerging Markets Portfolio was a $100,000 investment leveraged with a $200,000 loan in Japanese yen. The total investment was divided equally in three Jyske Invest equity mutual funds and one bond fund.

  

Share CCY  Name Invested Amount
25.00% USD JI Indian Equity Fund 75,000.00
25.00%  USD JI Chinese Equity Fund 75,000.00
25.00% JPY JI Japanese Equity Fund 75,000.00
25.00% USD JI Emerging Mkts Bond Fd 75,000.00

                                                                   

The November 2006 shift removed the bonds and Japanese shares.  We added equities in Turkey and the Far East .  The loan was shifted from yen to Czech koruna.

 

Before we compare history’s of these two portfolios let’s look first at the current emerging market portfolio and see what is happening right now.

 

The current emerging market portfolio we track consists of a $100,000 investment leveraged with a $100,000 loan of Czech koruna. The $200,000 total is invested in five Jyske invest emerging market funds.  The performance at this analysis is:

 

Share . CCY  Name  Price Invested Amount Today’s Value
25.00% USD JI Chinese Equity Fund   223.90 50,000.00 54,488.61
25.00% EUR JI East Europe Equity Fd.  513.60 50,000.00 51,347.02
25.00% USD JI Indian Equity Fund      271.50 50,000.00 46,418.05
15.00% USD JI Far East Equity Fund  383.20 30,000.00 30,912.06
10.00% EUR JI Turkish Equity Fund   89.20 20,000.00 22,352.77
      200,000.00 205,518.51

Investments Total Value   205,518.51
Loan    Loan Loan Now Interest Due
100.00% CZK 3.875%  100,000.00 102,796.98 1,449.51
      102,796.98 1,449.51  
Total Liabilities    104,246.49
Net Amount 101,272.02

 

The performance at the last Feb. 27 analysis was:

Share Inv. CCY Name Price Invested Amount Today’s Value 
25.00%  USD I Chinese Equity Fund 223.90 50,000.00 60,428.76
25.00%  USD JI East Europe Equity Fd. 513.60 50,000.00 55,298.49
25.00%  USD JI Indian Equity Fund 271.50 50,000.00 50,718.23  
15.00%  USD JI Far East Equity Fund 383.20 30,000.00 33,155.01
10.00%  EUR JI Turkish Equity Fund 89.20 20,000.00  24,278.81
   200,000.00 223,879.31

                                                                               

Investments Total Value    223,879.31
Loan     Loan Loan Now  Interest Due
100.00% CZK 3.875% 100,000.00 102,105.92 1,439.76
      102,105.92 1,439.76  
Total Liabilities   103,545.69
Net Amount  120,333.62

 

What we can see is a system wide drop of about 10% in all the funds.  This suggests a global worry rather than a problem in any one market.

This drop of course is magnified by the leverage. A 10% loss in the funds is doubled by the loan and represents about a 20% loss total, hence the funds performance dropped from +20.28% to +1.27%.  What leverage gives, leverage takes away. This is why we should never leverage more than we can afford to lose!

 

There has not been much currency damage as the loan cost is about the same now as it was in February.

 

Now let’s compare histories between the two portfolios.

 

The Asian Emerging Portfolio began October 21, 2005 and over the year we tracked it rose 114.16%.  Not bad, but the rise certainly was not straight and steady.

 

Beginning in November 2005 this portfolio shot straight up. After 20 weeks by March 5, 2006 this portfolio had risen +75.19%  

 

Then beginning in March 2006, the second worst emerging market plunge of the decade began.  By July 2006, The Asian portfolio had dropped over 50% to 30.28%.

 

Then in July, markets turned back up and the Asian portfolio rose 83.88% from July through October, 2006.  In three months, the $300,000 portfolio with leverage gained $251,640, a 151.64% profit on the $100,000 base investment!   

 

If an investor attracted by high returns had jumped into the Asian portfolio in March ($100,000 invested and $200,000 borrowed) the portfolio was down 44.91%. With the two times leverage, the investor lost $134,710. Those who jumped in at the early top lost everything plus 34.71% more.  This is why we remember again and again do not invest more than we can afford to lose.

 

If investors believed in the idea and could afford to hang on, or had a money management system in place to cut losses and then reinvest when the idea turned around, they were well rewarded. The Asian portfolio rose 83.88% from August through October, 2006.  In three months, the $300,000 portfolio gained $251,640, a 151.64% profit on their $100,000 base investment in three months!    They gained 251.64% in just three months to November.

 

Imagine this. If an investor started with $100,000 in October pulled out in March, he now had $175,000. If he then reinvested and leveraged this in August 2006, he ended up with $431,250 (251.64% gain on the $175,000)!  In other words he turned $100,000 into $431,250 in a year.

 

Last year I rode the entire wave and picked up the 100% plus returns.

 

This year. We’ll see. The new Emerging Markets Portfolio started to peak at 17% in early February, just as I exited. I have missed this current drop. The question now is when and should I reinvest back into these emerging markets?  

 

Many readers have written asking how I was so smart to time my exit exactly at the top.  The answer was I was not smart in timing at all. I was simply looking at value and the value changes happened to coincide with the market top. This is not normally the case.

  

This week markets look like they may be recovering. I doubt this will draw me back in. Watch my daily ezine messages today and tomorrow as they review Keppler’s value analysis which will give us better indications.  Until then you can know that I remain mainly out of emerging and major market equities.

 

Gary

See attached file.


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