MultiCurrency Portfolio Slump

by | Jul 3, 2006 | Multi Currency Investing

Multi currency slumps occurred but as you can see Asia is recovering and the Emerging Market Portfolio which temporarily slumped into a loss is moving back into profit. However the dollar portfolios are still suffering due to the weak emerging market currencies.


The Asian portfolio is up from 30.28% in our last update to 49.9% (since we initiated this study Oct 2005.)


The Emerging Market Portfolio dropped from 14.48% to 4.68%.


The Dollar Portfolios are all in losing territory now. Dollar long is down -16.7%, Dollar Short, -14.6% and Dollar Hedge -14.5%.


Here is the amazing part, if we look at all five portfolios and calculate the return on all, assuming an equal weighting in each, the rise in eight months has barely moved dropping from 9% to 8.9%. Because a month has passed the annual average has dropped a bit more from 15.60%, to 13.2%, but while some portfolios have dropped, others (mainly Asia ) have risen to compensate for the losses.


This is a continued lesson in the stabilizing power of global diversification.  Despite the second worst market shakeout of the decade our overall portfolio is still respectable.


The other lesson here comes from reviewing why the emerging market portfolio has fared so much better than the three dollar portfolios.


Note the Emerging Market Portfolio


% ofCurrency Name PriceInvested AmountValueAccrued Interest Portafolio
16%MXN 8,00% Mexican Fix Bonos 24.12.0898.7348,000.0045,875.14217.85
16% HUF 6,25% Hungary Govt. 12.06.08 99.2948,000.0044,136.91 8.72
17% ZAR10% South Africa , Rep. of 28.02.08104.6951,000.0043,716.63
17%USD JI Latin American Equity Fund237.2051,000.0059,664.84
17%EUR  JI Eastern European Equity Fund359.0051,000.0064,685.74
17%USD JI Emerging Markets Equity Fund137.6051,000.0057,189.68


41% of the portfolio is in well managed equity mutual funds.  If you look at the three dollar portfolios, each is an entire portfolio of bonds.


Another examination of the emerging markets portfolio above and we see that all the bonds in this portfolio are in a loss position, but the equities are all quite profitable.


In addition, if we look at the Emerging Asian portfolio, all the investments are equities or US dollar bonds.


% of.CurrencyNamePrice Invested Amount  Value Portfolio
25% USD JI Indian Equity Fund 75,000.0090,174.21
25% USDJI Chinese Equity Fund 75,000.0098,207.33
25%  JPYJI Japanese Equity Fund 75,000.0083,831.95
25% USD JI Emerging Markets Bond Fund US$ 75,000.0076,456.01


We can draw a number of possible conclusions from this. Most certainly this shows that emerging market equities are looking much better than emerging equity bonds right now.  We could further extrapolate that during inflation related market drops, equities dramatically outperform bonds.  In other words inflation turns investment logic upside down. Normally bonds are deemed safe and equities have more risk.  However during inflation equities are much better to hold than bonds.


Since this is an educational service we have committed to keep these five portfolios steady for a year. However in the investing world one would be thinking about ways to adjust. Increasing equities in the dollar portfolio would be one way to enhance performance. Read my regular message tomorrow because I’ll explain my plans for doing exactly this with my own investments in Turkey .   


Until next update, good investing to you!



See the attached file.