Multi Currency Portfolio Update #20


Multi Currency Portfolio Update #20

Here is the updated performance as of June 6 of the six multi currency investment portfolios that Jyske Bank created with our direction. We have been tracking them for educational purposes beginning November 1, 2007.

All the portfolios continue to rise and there are some good lessons to learn.

2008 Dec 14 Mar 20 April 5 May 14 June 6
Infrastructure -20.97 -79.79 -83.22 -51.42 -44.41%
Emerg Mkt – 9.82 -53.75 -54.20 -38.31 – 36.29%
Danish Health -32.51 -79.55 -85.34 -71.92 -80.45%
Green -14.31 -58.78 -56.66 -31.54 – 6.72%
$ Short Non – 9.08 -19.69 -18.31 -13.93 – 14.14%
Blue Chip – 5.14 -35.06 -47.55 -35.77 -35.25%

See the entire portfolios at
garyscott-iii

The Chinese curse, “may you live in interesting times” applies to change. Change is interesting. Change is frightening even though change is the cement in reality.

Change is evolution…the creative force and institutions of almost every type hate it.

Establishments are established to maintain the here and now…to resist change…so the never ending battle between the triad…birth-growth…maturity-inertia and death-disolution carries on.

Markets…institutions and establishments hate this and the increased pace of change that is taking place continues to be reflected in a nervous global equity scenario.

Yet reality and evolution do give us clues of where they are heading.

This may be why we such a difference between the recovery of the Green Portfolio and the Danish Pharmaceutical Portfolio.

Pharmaceuticals represent the establishment. Green investing represents change.

If we look at the Green Portfolio for the past 2.5 months we see again a remarkable performance…up about 50% or back on its 200% per cent growth rate of 2007.

This may be why three of the seven best performing shares in our portfolios for the last six months are in the Green Portfolio.

Vestas Wind Systems
Kurita Water Industr.
Hyflux Ltd

Here’s how these shares have performed from November 2007 to June 2008, a time when most shares were badly depressed.

Share Portfolio Invested June Val.
Vestas Wind Syst. Green 51,000 $74,244
Kurita Water Ind. Green 51,000 $56,624
Hyflux Ltd. Green 51,000 $52,764

However Jyske Bank sent a sell recommendation for Vestas shortly after the 2007 sector statistics of the wind-turbine industry were released.

The bank expressed concerns about Vestas at numerous levels, the first being structural defects in the wind turbine industry at the national level.

Jyske pointed out in this sell recommendation that the Danish wind-turbine industry’s global sales rose by 29% to nearly 9 billion dollars. The average annual
growth has been 22.4% from 1997 to 2007.

This rapid growth has created labor problems in a country as small as Denmark (population 5.5 million).

The large challenge is that this is a new sector that lacks know how and it is hard to obtain competent employees. Vestas for example hires net eight new employees per day, and the company admits that this poses great challenges to the organization.

Jyske’s concern is one of value. The bank believes that the sector growth will be high for many years. The bank also believes that wind energy shares and especially Vestas shares (since it is the largest wind turbine maker) will trade significantly above fair value.

Yet the market is ignoring the labor and other challenges, looking only at the benefit of the high future growth.

61% of the wind energy businesses experienced recruitment problems in 2007
and 74% of the businesses expect to hire more employees trough 2008 so the wind-turbine industry expects recruitment problems to grow.

This manpower difficulty could create payment of penalties due to non-compliance with project deadlines.

The need for skilled labor in Denmark could create bottlenecks at subcontractors that squeeze Vestas earnings.

The need for skilled labor at Vestas could also inhibit Vesta’s ability to compete against new, financially strong players entering the wind-turbine industry, such as GE and Siemens. They are increasing competition for market share and product innovation.

This leads Jyske to believe that Vestas’ global market share will gradually reduce from 29% to 22%.

Also because Vestas was an early leader in the industry, problems relating to the quality of the early wind turbines under warranty could result in heavy repair costs.

Vestas becomes an increasingly obvious acquisition candidate
as earnings are raised over the coming years.

Though this is a growth industry, Jyske feels that at the current price level, risks outweigh the potential for further return.

The current share price of Vestas is DKK664 ($139) and bank has set at 12-month price target of DKK 640 ($134).

Lessons we can gain from what we see in this update.

Lesson #1: Change can bring huge profit. In a most difficult time our Green Portfolio has risen 50%.

Lesson #2: There are risks even in growth industries. You cannot rely just on growth and should always look at value.

Lesson #3: Change can also create huge losses. Pharmaceuticals were a great way to make money. In this wave of change the sector has really dropped as consumer price pressures have worried investors.

Until the next update may all your change be good.

Gary

Join me with Jyske Bank for our next international investing course.

In North Carolina October 3-5, 2008

In Ecuador November 7-9, 2008


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