Multi Currency Bloodbath

by | Jun 2, 2006 | Multi Currency Investing

The multi currency blood bath in emerging markets and currencies received advance warning in this course. Yet if one looked at our five Multi Currency portfolios without knowing their history, they would never know.

The five portfolios look pretty good. Since Oct. 21, 2005:

The Asian portfolio is up 30.28% (a 51.84% annual rate)
The Emerging Market Portfolio is up 14.48% (a 24.84% annual rate)
The Dollar Long Portfolio is up 3.86% (6.60% annual rate)
The Dollar Hedge portfolio is up 4.27% (7.32% annual rate)
The Dollar Short Portfolio is up 3.02% (5.16% annual rate)

This performance is better in some instances than expected. In others the growth is less, but all have performed better than dollar CDs.

However we know better! There has been great turmoil, an actual meltdown, and our comparisons with our last update show this.

The Asian MultiCurrency Portfolio has fallen from +93.81% in our last review to +30.28%.

The Emerging Equity Portfolio is down from +67.40% to +14.48%.

Fortunately the three Dollar MultiCurrency Portfolios shifted from negative territory into areas of small gain.

The Dollar Hedge Portfolio rose from -2.51% to +4.27%

The US Dollar Long Portfolio rose from -4% to +3.86%.

The Dollar Short Portfolio, as would be expected, is the weakest of the three dollar portfolios, but still rose from -0.793 to +3.02%

However we should be aware that since our last review there has been enormous volatility.

Just two weeks ago the Asian Portfolio was up to +105%. So in just weeks it crashed from +105% to +30.28%.

The dollar portfolios were down -17%, -13% and -6% and have risen!

There are many lessons in this. First the weakening of the US dollar continues.

Second, emerging currencies are volatile and third, leverage enhances that volatility both up and down.

But the fourth lesson is that there is quite an amazing resilience in these portfolios over the long term. We have warned continually that markets were overheated and we could not expect such continued growth.

If we look at all five portfolios and calculate the return on all, assuming an equal weighting in each, the rise in seven months is just over 9% or an annual average of 15.60%, almost exactly what was projected to begin.

We’ll see if this means markets have now stabilized in the next review.

Until next update, good investing to you!


See the attached file.