MultiCurrency Portfolio Valuations

by | Mar 5, 2006 | Multi Currency Investing

Multi currency valuations show that each portfolio has increased in value since the last update.
The portfolios have increased in the 20 weeks since October 21, 2005:
Asian Portfolio +75.19% or at an annual rate of 195.49%
Emerging Markets Portfolio +61.03 or annual rate of 158.67%
Dollar Long Portfolio + 11.60 or annual rate of 30.16%
Dollar Hedge Portfolio + 9.93% or annual rate of 25.81%
Dollar Short Portfolio +7.22% or annual rate of 18.77%
This result is especially pleasing since there have been several articles in newspapers that warn that Borrow Low systems of enhancing profits through leverage may be at an end due to sharp shifts in several currency parities.
I discussed these added risk with Thomas Fischer at Jyske Bank and his reply is below.
As you know we are firm believers in asset allocation and diversification and always recommend our clients to have a good currency diversification. In order to follow the movements we have created a currency tracker with the following breakdown:
EUR/HUF 15% Hungarian florin
EUR/GBP 15% British pound
EUR/AUD 15% Australian dollar
EUR/NZD 15% New Zealand dollar
USD/MXN 15% Mexican peso
EUR/ISK 10% Islandic kroner
EUR/ZAR 5% South African rand
EUR/BRL 5% Brazilian cruzero
EUR/TRY 5% Turkish try
Index 100%
Last year this currency index increased 5.5% and diversified investors thus gained 5.5% versus the Euro on top of their positive carry.
This year the index stands at 99,50%, a small decrease.”
Thomas also pointed out that a total emerging market melt down could create losses because one can only diversify market risk and not system risk. However Jyske does not expect a melt down but rather corrections in some of the currencies (including Iceland and New Zealand).
Jyske is suggesting that clients reduce holdings in emerging market currencies by about 10% and put the money in high value equities.
I agree with Jyske that emerging markets will not melt down (at least in the long term). This is based on the belief that the emergence of the global economy is a natural extension of humanity and will continue. This means that emerging markets and their lower labor and production costs will continue to thrive for some time.
Jyske and I have used leverage for more than 25 years and believe that if you combine asset allocation and diversification you maintain more safety, even when leveraged, than if you put all the money on one bet.
The papers love to make doom and gloom predictions so I would take reports that Borrow Low Deposit High investing will end soon with a grain of salt.
Until next update good investing!

See the attached file.