Multi Currency Portfolio Update Ending April


Multi currency portfolios need understanding.

 

Here is the six month review of the five portfolio’s were  have tracked since November 1, 2006 (six months).

 

Portfolios 2007 Dec 29 Jan 30 Feb 26 Mar 27 Apr 13 Apr 30
Swiss Samba 8.10% 10.18% 20.49% 16.15% 21.88% 26.60%
Emerging Market 15.11% 14.83% 19.61% 12.81% 22.80% 32.46%
Dollar Short 12.91% 9.71% 18.17% 20.12% 24.35%  30.79%
Dollar Neutral 7.94% 12.63% 20.28% 16.58% 20.92% 25.58%
Green 34.77% 50.08% 86.22% 86.86% 105.72% 135.11%

 

I just wrote to our Gary Scott subscribers:

 

Last year we had, what I consider, really outstanding performance:

 

US Dollar Long 9.04%
US Dollar Short 10.43%
US Dollar Hedge 11.46%
Emerging Market  42.93%
Asia Emerging Market 114.16%

      

 

These annual returns are a portfolio manager’s dreams.  My 38 years and 364 days of international experience had a bit to do with this. Jyske Bank’s skills and excellent organization added a lot.  Yet such profits are not normal.

 

I am taken back to the early 70s when gold was selling at $860 an ounce and silver $48 an ounce.  A lot of people who were investing in those precious metals thought they were geniuses….but the gold and silver dealers did not.  I recall that the spread on silver was $48 sell, $38 buy. Those with real experience in the metals markets were nervous….with reason.  So my take is…this is great…but we must now take extra care…profits are coming too easily and life just does not normally work this way.

 

So here, let’s try to understand better why this type of performance is taking place.

 

First let’s look at how much involvement the forex profits or losses from our loans have to do with this profit.

 

Portfolio  Loan Dollar Value Percent Pay Back
  Currency Originally  Leverage  Value Now
Swiss Samba Swiss francs  $150,000 150% $154,494
Emerging Market  Czech koruna  $100,000  100% $106,393
Dollar Short  US dollar $200,000 200% $200,000
Dollar Neutral See below  $200,000  200% $206,096
Green  Japanese yen  $200,000  200% $196,047

 

The dollar neutral is borrowed in yen, SFR, CZK and euro

 

The only portfolio that has actually benefited from a forex fall from the US dollar is the green portfolio.

 

This portfolio is profitable because the yen has fallen, plus due to the leverage and because all the shares have performed well, but especially Vestas (which has more than doubled in six months) and Q cells ag.  Plus all the currencies these shares are denominated in (except the yen) have risen versus the US dollar as well.

 

Currency Share Invested Value Now
EUR Seche Environnement  48,000.00 53,618.27
DKK Novozymes B 48,000.00 59,957.92
DKK  Vestas Wind Systems 51,000.00 111,660.82
JPY Kurita Water Industr.6370  51,000.00 61,472.48
EUR Q-Cells Ag  51,000.00 88,634.52
SGD Hyflux Ltd 51,000.00 57,637.88

 

The leverage has more than doubled the profit.  This is the only mainly equity portfolio that used such high leverage. The other higher risk portfolios, the Swiss Samba and Emerging Market portfolios used only 150% and 100% respectively.

 

Had only $100,000 been invested (in the same percentages) in the Green Portfolio, its value would now be about $144,327.   $88,654 profit comes from the leveraged investments.  The additional $2,110 comes from forex profit after that forex profit has paid for the loan interest costs.    

 

The Green Portfolio has performed so nicely because we got absolutely everything right. When you borrow a low interest currency that falls against all the other invested currencies and use the leverage to invest in high potential shares and you get the shares right, the profits explode upwards.  We did. They did.

 

We just do not want to forget that the reverse can be true.

 

Ditto for the Emerging Markets Portfolio.   Every share purchased has shot up nicely.

 

Share Invested Value Now
JI Chinese Equity Fund 50,000.00 62,014.29
JI Eastern European Equity Fund 50,000.00 58,911.39
JI Indian Equity Fund    271.50  50,000.00 56,040.52
JI Far East Equity Fund 383.20 30,000.00 35,347.08
JI Turkish Equity Fund  89.20    20,000.00 28,579.54

 

Yet the leverage has not helped quite as much here. The loan payoff is more than the loan, so the koruna has (despite our beliefs otherwise) risen against the invested currencies.  This adds some degree of extra potential since the koruna is at an all time high versus the euro. Should it fall in the next six months this would add additional profit.

 

On the downside we can expect some drop in the Turkish portion of this portfolio for now.   Turkey is experiencing

political concerns at this time.  The recent Presidential elections had an inconclusive first round of voting that gave the potential of an Islamist-rooted government.

 

Turkish military commanders issued an unusually sharp statement saying it would protect the secular state.

Further political instability was created by a court challenge to the presidential election process and a mass demonstration against the ruling party.

 

Fears of military intervention, prompted by the army warning, enhanced the fears yesterday. The main share index had its biggest sell-off in nearly a year and the uncertainty could continue.  Losses in Turkish equities could extend.

 

I recently added Turkish shares to my portfolio as they represent good value. If the shares fall much further, chances are I’ll speculate more.  

 

We hope these rising markets and good performance will continue but as always we never leverage more than we can afford to lose.

 

Until next update, good global news for you!

 

Gary

See attached file.

At our upcoming IBEZ in N.C., we will update all the multi-currency portfolios and much more.  Join us May 25 – 27, 2007 at the International Business and Investing Course in North Carolina . Thomas Fischer joins me to update global economics there. http://www.garyascott.com/nccourse

 


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