Multi Currency Portfolio Lesson

by | Aug 10, 2006 | Multi Currency Investing

Multi currency portfolio lessons can be gained from the recent Multi Currency ride. What a lesson! Two months ago investors in emerging market investments were panicking.

Let’s get some perspective.

Last October when we began the study of our five portfolios they all took off like rocket ships. Returns were phenomenal.

By the end of the first quarter (week 13) the portfolios were way up:

Emerging Asian Portfolio +75.19%

Emerging Markets Portfolio +61.03

Dollar Long Portfolio + 11.60

Dollar Hedge Portfolio + 9.93%

Dollar Short Portfolio +7.22%

This made us look pretty smart but we increasingly warned that this extra fast growth would not last. This success worried me lest some readers who were just beginning actually thought this was how the MultiCurrency Sandwich worked all the time.

Then turmoil began when institutional emerging market investors started unloading high yielding investments such as Icelandic kroner and Turkish lira to pay off cheap loans in yen, low cost dollars and other low interest currencies such as the Swiss franc.

Newspapers and financial reporters heralded the end of the positive carry era.

We did not think so. We have writing about and following positive carry investments for over two decades. This is way before this type of investing became popular and in vogue. The reality we believe in is that until governments are fiscally prudent and markets are totally rational, there will always be some currencies with interest rates too high and some too low. This will create positive carry profits.

Plus we believe in diversification and not getting carried away with our leverage. This meant that during the down time the five borrow low portfolios combined at equal weights never became unprofitable.

But there was a down time. By week 18 the portfolios had dropped and seen lows of:

Emerging Asian Portfolio from +75.19% +30.28%%

Emerging Markets Portfolio from 61.03% to +4.68%

Dollar Long Portfolio from +11.60% to -16.7%

Dollar Hedge Portfolio from +9.90% to -14.5%

Dollar Short Portfolio from 7.72% to -14.6%

Those were huge drops!

However recovery came quickly and is running strongly now.

The Emerging Asian Portfolio is now up to + 68.9% fork 60.4% last report (all performance is from October 2005 when we initiated this study).

The Emerging Market Portfolio also rebounded from +16.47% + 34.37%

The Dollar Portfolios are all still in losing territory but are also now recovering quickly. The Dollar long is up from
-10.78% to -6.4%, Dollar Short, from -10.64% to -3.9% and the Dollar Hedge up from -9.5% to -4.5%.

If we look at all five portfolios as one with equal weightings at this update they have risen to an average of 17.77%.
That’s a growth rate of 44.77%.

So in less than half a year we have seen investing heaven and investing….well…you know.

We are pleased. In less than two quarters we have been able to learn many lessons much faster then expected and still end up looking pretty good.

Let’s look in more depth at the hotshot Emerging Asian Portfolio and see why it especially has enjoyed such classy success. Here is how the four investments in the portfolio have performed.


USDJI Indian Equity Fund163.6075,000.00 95,950.49
25.00%USDI Chinese Equity Fund128.3075,000.00107,209.66

JI Japanese Equity Fund

25.00%USDJI Emerging Markets Bond Fund USD242.1075,000.0079,429.99


These investments are all open end funds managed by Jyske Invest. You can get more details from Thomas Fischer at

This portfolio consists of several ideas.

Idea #1 of course is invest in Asia . This makes a lot of sense. Two of the world’s largest markets are represented. China and India are in dramatic growth modes. Japan is recovering from a decade long recession. There is a nice balance between the emerging ( China and India ) and the emerged ( Japan ). These three countries also all have strong trade and current account surpluses which bodes well for currency strength.

Idea #2 is to borrow really cheap yen (1.62%) and hedge forex risk by having $75,000 invested in yen through the Japanese equity fund. This reduces forex risk though it also reduces forex potential.

Idea #3 is to invest in Asian equities (good idea so far) but to diversify into emerging market bonds (not such a good idea). As we have seen over the past several updates, bonds have been hurt in the turmoil and global inflationary trend. Equities have thrived. The bond portfolio has not fared anywhere as well as the three equity funds in this portfolio. Had we invested a third in each of the three equity funds and skipped the bond fund the portfolio would be up 83% instead of 68%. This of course is hindsight!

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 Asia would be one way to enhance performance. At this stage I would be thinking about dumping the emerging market bond fund and adding more China and India equities.

Until next update, good investing to you!


See the attached file.