Multi Currency Mutual Funds

by | Jul 22, 2008 | Multi Currency Investing

One great way to find good shares is to study the portfolios of successful multi currency mutual funds. Fund managers usually have some good reason why they are overloaded on a particular share so taking a look at the top ten investments held in a fund is a bit like looking into a fund managers’ soul.

If you believe in value multi currency investing, then studying value oriented multi currency mutual funds can help you find value oriented shares.

Our last update reviewed Michael Keppler’s emerging market valuations. This update showed that Hungary, Israel, Korea, Malaysia, Poland, Taiwan, Thailand and Turkey at equal weights offer the best value with minimal risk now.

This update looks at the State Street Global Advantage Emerging Market Fund which invests primarily in good value shares in equity markets that Keppler has identified as good value markets.

This fund began December 1993 has over 1.5 billion dollars in assets and is registered in Luxembourg mainly for European investors (though almost any non American can invest).

This strategy attempts to outperform the Morgan Stanley Capital Index Emerging Markets Total Return Index (MSCI EM) with less risk of loss in the medium term (3 to 5 years).

The current country diversification is:

Cash 1.6 %
Other 8.3 %
Turkey 11.3 %
Thailand 13.5 %
Taiwan 13.7 %
Poland 13.2 %
Malaysia 12.1 %
Korea 12.8 %
Israel 6.9 %
Hungary 6.6 %

This shows how the State Street managers have diversified the assets almost exactly as Keppler ranks the markets. Their only deviation is a reduced weighting in Israel and Hungry.

The top investments currently are

Anglo American plc 3.98%
PKO Bank Polski SA 3.08%
OTP Bank 2.91%
Teva Pharmaceutical Industries Ltd. 2.60%
Israel Chemicals Limited 2.42%
Samsung Electronics Co. 2.37%
Banpu Public Company Limited 2.27%
MOL Hungarian Oil and Gas Plc. 2.25%
Taiwan Semiconductor Manuf. Co. Ltd. 2.12%
PTT Public Company Ltd. 2.11%

The performance of this fund shown below has been good long term, 7.77% per annum which is 62% higher than the 4.78 per annum rise of the MSCI EM Index.

These returns are heavily distorted downwards by the recent downfall. If you were to have viewed the emerging market and fund growth nine months ago they would be much higher.

We should expect more that 7.7% per annum long term growth from emerging markets.

See more on this at an article entitled Multi Currency Stock Selection Process

Short term performance reminds us of the lesson we have seen repeated in several recent updates…value investing tends to under perform short term in down markets.

Per Annum Return
Since inception 1993 7.77% 4.78%
Last five years 23.82% 21.80%
Last three years 15.09% 16.45%
Last one year -15.53% -10.31%
Last three months – 4.64% – 0.30%
Last 1 month -10.12% -11.20%

This reminds us that no one ever understands all the moves in a market all the time.

This is an important lesson.

State Street is Boston based and one of the largest investment managers in the world. They manage trillions of dollars and this fund has won award after award for top performance. Yet in the last year this fund is down over 15%, a higher loss than the MSI EM index over this period. The fund is down 10% in the last month right along with the benchmark. Obviously these managers (who are very good at what they do) with all their experience, talent, resources and ability do not understand the short term moves in the market.

Even worse, in the short term we may understand the market but cannot predict volatility because share prices are moved in short spurts by human nature which is unpredictable.

An investor’s worst enemy is a belief that you they can beat the market in the short term. My experience is tough economic times magnifies the human tendency to ignore reality. When markets are down (as they are now) we are more likely to need our savings at the worst possible time.

Regretfully our desires and financial needs rarely have any impact on what markets do, so be careful of the inclinations to believe unrealistic promises when markets are in a correction phase.

What we do know is that certain strategies such as filtering shares for value and investing for the medium term have proven themselves to work…given time.

We should expect 7% to 10% annual return in the stock market as a function of global nominal GDP growth and long term earnings growth plus risk premium over bonds…more in emerging markets.

To improve on the average, an investor can use value filters to zero in on shares most likely to rise.

Let’s look at the filters we use again and then walk through the process with one of the larger holdings in the State Street Emerging Market Global Advantage Fund. Here are the questions we ask about a share as our initial filters.

#1: Are the shares traded in a good value market?
#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
#3: Does the share pay a good value dividend?
#4: Do the shares have a good value relative to their previous price?
#5: Does the company have rising earnings?
#6: Has the share price been rising?
#7: Is the company’s management good and is their product or service line in a wave of the future?

Since oil shares have been performing well, here is a review of MOL Hungarian Oil and Gas Plc. This share accounts for 2.25% of the funds portfolio.

#1: Are the shares traded in a good value market?
Yes. Hungary is one of the Keppler top value ranked markets.

#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
They do not look good to me. The petroleum industry return on equity average in the last year has been in the 18% range. MOTs was 15 in 2006 and dropped to 10% in 2007.

#3: Does the share pay a good value dividend?
Emerging markets often pay less yield and offer higher capital growth. However at the MOL Annual General Meeting AGM, the 2007 business year was closed with a dividend of HUF 85bn representing a 40% pay-out ratio.

#4: Do the shares have a good value relative to their previous price?
The price has fallen from HUF30,000 in June 2007 into the HUF 18,000 range so value must be rising.

#5: Does the company have a rising in earnings?
At first glance it would appear, yes. In fiscal year 2007, operating profit in USD-terms rose to USD 1,629 million. Net profit improved to USD 1,215.2mn (up 12% year-on-year). A second glance tells a different story. The Hungarian Forint appreciated 10.2% during 2007 so the earnings growth in HUF terms was very low.


You can see the HUF’s rise here in this chart at

#6: Has the share price been rising?
No. The share price was 28,000 HUF six months ago. Now it is 18,622.

#7: Is the company’s management good and is their product or service line in a wave of the future?
MOL was founded in 1991 and is a major Central European company in the integrated oil and gas industry. Based on its turnover figures, it is the largest enterprise in Hungary. The company seems to be expanding rapidly in the Eastern Europe but also acquiring debt.

On July 17, 2008, Standard&Poor’s Rating Services placed MOL’s ‘BBB-‘ long-term corporate credit rating on CreditWatch with negative implications. This reflects the company’s intention to launch an offer for the 30% of INA shares that are not held by the Croatian government, while also negotiating acquiring a further INA stake from the government. The CreditWatch action was taken because this will raise debt to over 2 billion dollars.

Petroleum is an investment for the here and now. No big wave profits will come in the mainstream of this sector.

Our filter rates this as so-so with four positives out of our seven filters. A big fund manager with over a billion to invest in emerging markets may not be able to pass an emerging blue chip in this hot sector.

As smaller investors (I assume you do not have a billion to invest), we can be more discriminating.

First, we need to decide if this is the type of investment we like, believe in and that fits our needs. If all this fits our goal, then this may be a share to watch and buy without any hurry.

The alternative is invest in the State Street Global Emerging Market Global Advantage Fund.

Americans as mentioned cannot buy this fund though its portfolio provides us with many value oriented lessons. Non US investors can buy the fund.

The fund has an initial fee of of 5% which is not good but non US subscribers can avoid this fee by opening a bank account at State Street Bank Luxembourg S.A.

The contacts there are Daniel GonÁalves, Telephone: +352 46 40 10 040


Walter Andres, Telephone: +352 46 40 10 128

Fax: +352 2452 9080 (for order activities)

To avoid paying any sales load, our subscribers can open an account at State Street Bank Luxembourg. This requires a lot of paper work including a notarized copy of your passport but may be worth the effort to avoid both the sales load and account fees.


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