Multi Currency turmoil

by | Apr 6, 2006 | Multi Currency Investing

Multi currency markets have been in a state of turmoil since our last update March 21, 2006.

We can learn a lot in these dynamic situations.
First we can see that not all fundamental trends are automatically get knocked sideways in times of turmoil.
The Asian MultiCurrency Portfolio has continued to rise from the +80.10% October 21, 2006 to the March 21, 2006 position up to a 90.20% gain as of April 6, 2006. This is a reflection of strong emerging Asian economies. The downfall of emerging currencies has had little impact in Asia.
The other emerging currencies (and hence multicurrency portfolios) have not performed as well.
The Emerging Market Portfolio has dropped from 52.67% to 47.61% from Oct. 21, 2005 to April 6, 2006. This is still an incredible performance but shows the downside of leverage. What can rise
quickly can also fall rapidly.
The three Dollar MultiCurrency Portfolios have performed worse and are now all in negative territory.
The Dollar Long Portfolio dropped from +3.95% to – 0.875%
The Dollar Hedge Portfolio dropped from + 3.22% to – 1.39%
The Dollar Short Portfolio dropped the most from +1.95% to – 4.24%
There are several lessons to be gained here. First even though there is strong leverage, the fall has not been bad despite really miserable conditions. This is a lesson about the protective power of regional currency diversification. The losses in the three dollar portfolios came almost entirely from four currency positions, the Hungarian florin, Icelandic kroner, Australian and New Zealand dollars.
These four positions took heavy drops. This downside was buffered by gains in Mexican pesos, Brazilian cruzeros, Turkish try combined with the dollar and euro positions.
The second lesson is that the US dollar, despite selling pressure and really lousy fundamentals, can remain more resilient than we would suspect. The largest loss coming from the dollar short portfolio reminds of the risks of betting short term against the greenback.
We have not changed any of the positions in the model portfolios as we want to be able to explain the ins and outs of the currency sandwich, during times of both profit and loss.
Jyske bank did contact their clients in February and recommended a shift from New Zealand and Iceland. Those who followed that advice had much better performance.
Personally my goal is to balance the liquid portion of my portfolio at 50% in US dollar block investments but to reduce the US dollar portion of that block and add more of the other US dollar related currencies. I am looking at increasing the emerging portion of this portfolio perhaps with Mexican pesos. I just added Braziliancruzero.
I am also looking to increase the Euro block to 45% including more emerging positions perhaps with the Turkey try, South African rand and Icelandic kroner. I just added Hungarian florin.
I also plan to maintain a high degree of liquidity with the idea of increasing emerging equities (especially in water companies) if  volatility pushes emerging equity prices down. You can seem my personal portfolio breakdown at:
Note that my multicurrency sandwich position consists of borrowed Swiss francs invested in euro.
Until next update, good investing to you!

See the attached file.