Multi Currency Portfolio Update #14

by | May 5, 2008 | Multi Currency Investing

Here is the updated performance of the six multi currency investment portfolios that Jyske Bank created with our direction.

We have been tracking them for educational purposes beginning November 1, 2007.
These portfolios are all still down, but all have risen since the last update.. See them in detail at

2008                  Dec 14     Feb 19     Mar 20   April 5       Apr 28
Infrastructure    -20.97     -69.39     -79.79      -83.22%    -61.57%
Emerg Mkt        –  9.82     -44.27     -53.75      -54.20%    -44.32%
Danish Health   -32.51     -78.99     -79.55      -85.34%    -74.26%
Green               -14.31     -54.29     -58.78       -56.66%    -31.54%
$ Short Non      –  9.08     -18.99     -19.69      -18.31%     -14.82%
Blue Chip          –  5.14     -24.98     -35.06      -47.55%     -42.22%

This update looks at the US Dollar Short Non Leveraged Multi Currency Portfolio and the Green Multi Currency Portfolio.

These two  portfolios contain valuable lessons.

The first lesson, from the US Dollar Short Portfolio, is that a well balanced multi currency portfolio won’t do all that badly even in pretty bad times.

This has been a pretty bad time for equity prices. Global equities as a whole dropped for their fifth consecutive monthly loss in March, 2008. The last time this happened was in September 2001.

Bear markets tend to drop much faster than bull markets rise.  Pain, I guess, is a better motivator than greed!   So equity markets revalue quickly…especially when a bear market is accompanied (or caused) by a failing economy.   Stock markets drop faster than economies do, so before the economy recovers, share prices become under priced.

There is a time when the economy continues to drop but share prices have fallen so low that intelligent buyers step in and share prices begin to rise.

This may be happening now.  We’ll see in the next month or two.

If so…then the worst is over in the current bear market.

If so…the Dollar short non leveraged portfolio did not drop badly.


This portfolio performed better than we might expect considering that a fourth of the portfolio was in shares of Jyske Bank.  Banking sector shares were hit hard.

Shares were hammered in Europe and Asia as they were in the US.

The dollar short portfolio held up in part because all of its shares were in strong currencies in Asia and Europe.

This portfolio does not look so good to European investors who maintain their portfolios in euro!

Currency diversification can add a buffer during global bear markets and long term betting against the S dollar as made sense for most of 40 years.

However as global stock market beef up a bit, we could actually see some weakness in this portfolio as the dollar is currently showing signs of renewed strength.

Jyske Bank is bullish short term on the US dollar as it is actually strengthening a little these days.

This is most likely a sign that speculators have over sold the greenback.

Fundamentally though many things are happening that could send the dollar down further.

For example, the Federal Reserve’s policy-setting Open Market Committee lowered the benchmark Federal Funds target rate by
one-quarter point, to 2.0 percent. The Fed also gave no indication that it planned to stop cutting rates now.

Lower interest rates tend to weaken a currency.

President Bush’s attack on Congress for being the blame of the slow economy does not help either.   I am not sure that either Bush or Congress have much to do with the economy.  But all the steps taken so far to stimulate an economy, that should be slowing  down, are dollar adverse.  The tax rebate…the lower Fed rate…the pick up in public sector hiring all add money without productivity.

Money without productivity is inflationary.  Inflation forces a currency down.

The only reason the US dollar has not fallen further is because other governments are making similar inflationary moves.

This is why multi currency investing is about diversification…positive carry and long term trends and positions…not currency trading.

A reader just sent me this note that can help understand the importance of diversification…not speculation in currencies.

This reader wrote:

“Hi Gary.  I got your free email from a friend, (who felt you were real and had a global commitment to more than the gods of materialism) and am in the process of taking over my personal investments. I am not happy with the returns, and paying for these results. I have been reading, studying, playing on line with paper money and will soon be in a position to move my money into real time investing.

“I would like to have some of my money in a multi currencies portfolio. I had thought about learning to trade Forex?

“I will have between 200k and 250K to manage.  I want to  (need to create) returns of 20%  plus for my money, in order to continue to keep expanding my life in a vast  multitude of directions. I believe it is possible, but I do believe a  discipline and education are part of the journey.  Any comments or suggestions are appreciated.”

Here is my reply.

“First, I would not count on a return of 20% per annum on your money.  This is unrealistic.  12% per annum on a regular basis is considered world class returns.

“Forex trading is a high risk, capital intensive business in which only a few individuals succeed.

“Our method of multi currency investing is not about speculating in  the unknown of whether currencies will rise or fall versus one another.

“Our system is based on our 40 years of global investing experience combined with the 100 years of research and experience of one of Denmark’s multi currency banks and is about diversifying into a number of currencies and taking advantage of know interest rate differences.

“At times some currencies can be borrowed at low rates and others currencies offer high rates so we often leverage investments with low interest loans but usually on quite a modest scale (rarely more than two times investment).

“So at this time Jyske Bank feels that the US dollar may strengthen.  Whether it really will rise versus other currencies or not is unknown.  To invest in the unknown is speculation.

“What is known is that we can borrow US dollars for 4.4% and even less.  What is known is that we can invest in other currencies that pay more than the cost of the loan.

“For example right now we can invest in a 7.25% Russian ruble GAZPROMBANK bond due 22/02/2010 that yields 7.44%.

“The 3% yield differential, called positive carry, is known.   There is still an element of speculation involved because the ruble dollar parity may change.    The positive carry means you begin with a known. Plus the fact that the dollar has weakened for 40 years is known as is the fact that Russia’s credit rating is strengthening.

“So forex speculators may make a highly leveraged (10 times or even more) bet that the dollar will rise or fall in the next month, week, day or even hour.  Our multi currency approach is to leverage modestly (rarely more than two times investment) with low interest loans to take advantage of the known positive carry.”

At this time, even though the US dollar may be strengthening short term, the non leveraged US dollar short portfolio makes sense to us due to weak dollar fundamentals and because we like the investments in that portfolio.

The non leveraged US dollar short portfolio has 75% of its investments in major European equities.

The seven most attractively valued national equity markets at this time are Belgium, France, Germany, Italy, the Netherlands, Spain and the United Kingdom at equal weights.  The Jyske Invest European Equity Fund which represents a large part of the non leveraged US dollar short portfolio at this time is invested mainly in these seven markets.

Now may be a time to start looking at major market multi currency stocks. Here is the thought process I used to arrive at this conclusion.

The first thought.  We can expect a mature economy to grow about 3% per annum.

This is a bell wether…a measure to watch for all major stock markets.

Thought #2:  Stock markets should grow along with the economy plus reward investors with a risk premium.

Major currency savings accounts…the seemingly safest place to park extra money… should offer 3% or 4%.  This keeps up with growth.

Major currency bonds…seemingly safer than shares…but not as safe as savings  accounts should earn 5% or 6%.  Shares then should be expected to grow 7% to 10%.

Of course we want to do better than average!

Thought #3: If a mature stock market grows slower than 7% to 10%, we may expect a spurt of catching up (time to buy).

If a major market grows faster than 7% to 10%…then we may expect a slow down…time to sell.

Next…emerging markets.

Thought #4: Emerging economies are expected to grow faster than major economies…even twice as fast…6% per annum.  Emerging  stock markets reward an even greater risk premium so they may rise faster as well…up to 14% to 20%.

The extra premium is because emerging shares are also more volatile and likely to fall quickly.

Over the past few years…easy money from sub prime loan sources have made it easy to borrow to invest in emerging markets. This extra money going into small markets pushed prices up and reduced the feeling of risk.  Investors began to invest disproportionate amounts
in the riskier emerging markets.

Because these emerging markets are small, the extra investing pushed values higher than they should be which means they will also fall faster.

During the recent global economic downturn, the major markets have dropped…as they should. This is like a diet. Over valued share values are trimming down…so they should reach a point where they are a good value to buy.

Emerging markets also should be trimming down, but have not in a way we would expect.  This means that they probably are not such a good value and they have higher risk and offer less potential reward.

This is how one “gains the most”…buying something that has fallen (or not risen as fast as it should)…not something that has risen quickly without some foundation of reason.

The Green Portfolio has another lesson as it recovers faster than any of the other multi currency portfolios.

This is because big problems create big opportunity.

There are fewer problems as big as diminishing natural resources.  The Green Portfolio is invested in two of the three investment sectors I call the “Holy Trinity Investments of the Here and Now”  timber…water and alternate energy.

The lesson here is that even in bear markets, major fundamental trends hold up.

If it were not for a short term forex loss, the green portfolio would not even be down sort term…in the last five months.

A longer view looks pretty good.

Had you invested $100,000 in this portfolio when we started it 17 months ago, assuming that you held on through the five months drop,  your portfolio would now be worth just over $250,000 in 17 months.., or up about 150% or 8.8% a month…not bad considering this has been one of the worst global equity markets in many years.

The main reason for this performance are two shares in the portfolio, Danish, Vestas Wind Systems and Japanese, Kurita Water Industries.

Jyske currently has a buy signal for Vestas Wind Systems, which is the largest wind turbine maker in the world.

The current share price is 459 Danish kroner. Jyske’s target price is 610.  The bank feels that the company has:

#1: Attractive relative valuation.

#2: Good market conditions with a strong demand, which
results in higher prices and better contractual conditions.

#3: Better internal processes contribute to higher

Kurita Water Industries has a current share price of 3820.

Kurita is a 60 year old Japanese company that provides water and environmental management through two divisions.  The chemicals division  provides boiler water treatment chemicals; cooling water treatment chemicals; wastewater treatment chemicals; process treatment chemicals; incinerator chemicals; equipment and systems for water treatment chemicals; and customized services, including a steam supply contract and blanket contracts for factories. The Water Treatment Facilities segment provides ultra pure water production. wastewater reclaim systems, wastewater treatment systems, tool cleaning, operation and maintenance services.

The company has good global clients operating in  Japan, South Korea, China, Taiwan, Singapore, Indonesia, Thailand, the United States, Germany, and Brazil.

The shares of the company have risen steadily over the past five years from 1,200 yen per share to 3,820 now. Here is its five year chart of Kurita’s share price. You can see the dip in share price when the global equity bear began but also see how quickly its price recovered.

Until next message, I hope you have good global investing everywhere.


Join me in North Carolina with Thomas Fischer from Jyske Bank for an update of the portfolios and more.   See North Carolina course May 23 to 25.