Multi Currency Portfolio Update April 2007

by | Apr 14, 2007 | Multi Currency Investing

Multi currency portfolios can recover quickly as you see here.


Unlike last year, equity markets have recovered quickly from their early march down turn.


There has been a phenomenal increase in the portfolios from a month ago.


Here is a review of the five portfolio’s growth since November 1, 2006 (five and a half months).

Portfolios 2007  Dec 29Jan 30Feb 6 Feb 26Mar 8 Mar 27 Apr 13
Swiss Samba8.10%10.18%13.83%20.49%8.21%16.15%21.88%
Emerging Market15.11%14.83%17.46%19.61%1.27%12.81%22.80%
Dollar Short12.91%9.71%12.50%18.17%12.30%20.12%24.35%
Dollar Neutral7.94%12.63%13.62%20.28%11.26%16.58% 20.92%


Performance is excellent in every portfolio.  The Green portfolio is now running past a 200% per annum clip!


The big question is can we count on such returns to continue?  Investors who do not have an extraordinarily long views will be placing stop losses on their positions to lock in profits.


Yet how can we tell if these portfolios, after such a rise are still a good place to store wealth?


One way is to look at value.  If the shares in a market offer good value they are likely to rise further.  If the shares offer poor value their prices have probably left the realm of reality and are over fueled by speculation. 


Invest in value.  Avoid buying at high speculative prices, especially with leveraged portfolios!


A look at the long term however suggests that, from a value point of view, there may be room for these portfolios to grow even more.


Let’s look for example at the valuations of the Emerging Markets Portfolio as analyzed by Keppler Asset Management. I have worked with this firm for nearly 20 years. Their performance has been outstanding.  Keppler continually researches many international major and emerging stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return. He compares each market’s history. From this he values each market in a rational, mathematical way and does not worry about short ups and downs.


In January 2007, Keppler Asset Management was, for the third consecutive year, named Best Fund Company in the Fund Specialists’ category by Capital, a leading German business magazine. Keppler’s firm was one of only six out of 100 companies tested that received the highest five-star rating based on an independent evaluation of fund quality, management, and customer service by Feri Rating & Research and Steria Mummert Consulting.


The April 2007 edition of Capital Magazine, Germany ’s major investment and business periodical stressed the outstanding quality of Keppler’s fund products. The magazine said:  “Michael Keppler again earned the highest five-star rating. A Bavarian residing in New York , Keppler follows this secret recipe: He searches the globe for attractively valued equity markets, analyzing the balance sheet data of thousands of companies included in his data base. The markets he selects are equally weighted in his portfolio. Only as a second step, suitable stocks are selected. The concept works. His global and emerging markets equity funds have achieved above-average returns for years. They are long-term buy candidates.”


The idea is to invest in markets that based on price earnings, price to cash flow and dividend yields offer good value.  If one uses mutual funds rather than individual shares, hopefully the fund manager will add a benefit by selecting especially good value shares from the good value markets.  Jyske Invest does this by analyzing shares  with their VAMOS system (VAMOS stands for Value, Momentum and Strength).


The Emerging Markets Portfolio is invested in China , Eastern Europe , India , the Far East and Turkey in the percentages shown below.


Percent of  PortfolioInvestment  Invested Value Now
25.00% USDJI Chinese Equity Fund 50,000.0061,947.30
25.00% EUR JI Eastern European Equity Fund50,000.0058,208.63
25.00% USDJI Indian Equity Fund50,000.0049,576.43
15.00% USDJI Far East Equity Fund30,000.0035,503.65
10.00% EURJI Turkish Equity Fund20,000.0025,373.42
Investments Total Value 200,000.00230,609.43
100.00% Loan in CZK at 3.875%100,000.00105,948.04
 Interest Due  1,858.57
 Total Liability 107,806.92
Net Value  122,802.51


So $100,000 was invested ion this portfolio last November. Now its worth $22,802 more (up 22.80% in 5.5 months).  After this appreciation, does the portfolio still offer good value?


According to Keppler the current emerging markets that are a good value are Brazil , Korea , Malaysia , Poland , Taiwan , Thailand and Turkey . Bad value markets or sell candidates are Argentina , Egypt , India , Indonesia , Mexico , Morocco , Pakistan , Peru , and South Africa .  The neutrally rated markets include Chile , China , Colombia , Czech Republic , Hungary , Israel , Jordan , Philippines , Russia , Sri Lanka and Venezuela .


Good value markets are more likely to rise. Neutral value markets are likely to maintain their price.  Bad value markets are most likely to correct.


This means that 25% of this portfolio ( India ) is likely to fall.  This portion of the portfolio is already down (barely), but even with the loss, this portion does not reflect good value.


25% of the portfolio is invested in neutral markets ( China ).  This market has performed well (up 23%), but valuations suggest it should not rise much more right now.


10% of the market is invested in good value ( Turkey ). Turkey is already the second best performer in the portfolio at 21.93%. However we can expect this to rise even more.


The rest of the portfolio is a bit harder to see as the investments are in two mixed funds (East Europe and Far East ).  We can get a bit of a picture by looking at the underlying portfolio breakdown of the funds. The Eastern European Fund for example shows a holding breakdown of 4.5% in Hungary (neutral), 5.5% in the Czech Republic (neutral), 22% in Poland (good) and 58% in Russia (neutral), This makes the fund a fair value, better than neutral.


The Far East Fund holds 44% in good value markets as 22% is invested in Korea , 15% Taiwan and 7% Malaysia (all good value).  34% is invested in neutral value markets (14% China , 14% Hong Kong and 6% Singapore ).  13% is invested in poor value markets, (8% India and 5% Indonesia ).


From a good value point of view this fund is also a fair value and perhaps better than Eastern Europe . This is a pretty strong position.


In review the Emerging Markets Portfolio is invested 10% in good value ( Turkey Equity), 40% in fair value (Eastern European and Emerging Asia equity), 25% in neutral value ( China Equity) and 25% in poor value ( India Equity).   This suggests continued positive performance.


There is another opportunity building within this portfolio created by the Czech koruna loan.  Note that the payback before interest on the $100,000 loan is currently $105,948.04.  This means that the Czech koruna has appreciated nearly 6% more than the currencies in the portfolio.  Many of the currencies held in the portfolio, (especially the Asian currencies) are artificially depressed.  The Czech koruna was at an all time high versus the euro when it was borrowed for this portfolio. Economic fundamentals suggest that the koruna is more likely to fall than rise. If so, the portfolio would become worth even more.


Now let’s examine the wonderful Green Portfolio which is up 105.72% in five and a half months.  The $100,000 investment is now worth $205,720 in just five and a half months.

Percent of Portfolio Market Investment InvestedValue Now
16.00%FranceSeche Environnement  48,000.0053,357.58
16.00%DenmarkNovozymes B 48,000.0054,935.64
17.00%DenmarkVestas Wind Systems51,000.0097,562.54
17.00%Japan Kurita Water Industr.51,000.0061,511.04
17.00%GermanyQ-Cells Ag51,000.0081,869.83 
17.00%SingaporeHyflux Ltd51,000.0054,325.59
Investments Total Value  300,000.00403,562.22
100.00%JapanLoan in yen at 1.880%200,000.00196,170.23
 Interest Due 1,669.84  
Total Liability  197,840.07
Net Value 205,722.14


First let’s look at a value analysis of the portfolio by market.


Keppler ranks the major markets market buy candidates as Belgium , France , Germany , Italy , Netherlands , Spain , United Kingdom .  The sell candidates are Austria , Canada , Denmark , Japan , Switzerland and U.S.A.  Neutrally rated markets include Australia , Hong Kong , Norway , Singapore and Sweden .


So 34% of the portfolio is invested in top value markets ( France and Germany ).  17% of the portfolio is invested in a neutral market ( Singapore ).  49% of the portfolio is invested in sell rated markets ( Denmark and Japan ).


This valuation suggests that the Green Portfolio may be a bit bubbly, especially the Vestas and Novozyme shares.  A stop loss on these shares would make sense.


There is another potential downwards pressure in this portfolio created by the yen loan.  The yen loan has contributed a profit. This portfolio is more highly leveraged that the Emerging Market portfolio. The emerging market portfolio has a $100,000 loan with a $100,000 investment.  This Green portfolio has a $200,000 loan with a $100,000 investment. The higher leverage has enhanced performance but it can also accelerate a correction.


The yen has been the subject of huge borrowings and the market is continually in a state of anxiety over its potential appreciation.  Any time risk aversion increase in the market place, a large number of investors rush to cover their yen loans.  If another yen loan exit takes place, the yen could suddenly rise as everyone buys yen to pay off loans. 


A stop loss on the yen in this portfolio would make sense now.


Investors who have invested in these portfolios should be more than pleased at this time.


We are. Yet the better the portfolios look the more we should exercise caution. 


Until next update, good international investments to you.




Be sure to join us at our upcoming IBEZ in North Carolina . We will update all five  multi currency portfolios and much more.  The course runs May 25 – 27, 2007 and Thomas Fischer from Jyske Bank will join me to update global economics there.  For more details see