This lesson looks at the Emerging Market portfolio.
Here is the performance of all the portfolios for the last year:
Portfolio 11 and 12 month Performance
Green Portfolio Nov 2008 – 208.91%
Emerging Market Nov 2008 – 131.78%
Dollar Short Nov 2008 – 58.50%
Danish Health Nov 2008 – 146.81%
Infrastructure Nov 2008 – 224.73%
Blue Chip Nov 2008 -146.47%
The thinking when the emerging portfolio was maintained last November was: “This portfolio had performed well for two years. Good values were supported by growth and earnings so we kept this portfolio in our basket for a third year. We made a major change by eliminating the 15% Far Eastern Equities and increasing the Turkish equities from 10% of the portfolio to 25%. We also eliminated the Czech koruna loan and borrowed 50% Swiss francs and 50% Singapore dollars instead.
The first lesson we learn from tracking all these portfolios jumps at us!
Look at that performance above again. All the portfolios are way down.
Though all the portfolios tanked, their performance is not primary. These portfolios are for study not for investing.
What we see is that the emerging portfolio is the best performing of the leveraged portfolios. (The dollar short portfolio was not leveraged).
This can be monumental news…incredibly valuable information.
Let’s look at the emerging portfolio breakdown and see.
JI Chinese Equities Invested $50,000 Value $16,403
JI Latin American Equities $50,000 Value $21,405
JI Eastern European Equities $50,000 Value $16,937
JI Turkish Equities $50,000 Value $13,795
Total Invested $200,000 Portfolio Value $68,541
$50,000 Singapore 4.375% Payback $50,381
$50,000 Swiss franc 4.375% Payback $49,892
Total Payback $100,273
We can derive several really valuable lessons.
First, again the key lesson we have seen all year is …what goes up…can come down. If it goes up faster with leverage…it can come down faster with leverage. $100,000 was invested…$131,000 lost…in a year.
Second lesson…borrowed currencies count! The Green Portfolio suffered a 30+% forex loss because the borrowed yen rose against the euro which was the denomination of much of the Green Portfolio.
In the emerging market the Swiss and Singapore dollars were borrowed. They did not rise versus the US dollar this year. In fact there was a tiny forex profit that essentially eliminated the interest cost of the loan.
The third lesson is about the amount of leverage. The Green and other portfolios were leveraged two times. This portfolio was only leveraged once. This suggests that a higher potential, but higher risk portfolio with lower leverage is safer than a low risk, higher leveraged position.
Someone please ask me questions about this!
Now consider these three points:
#1: Globalization is here to stay. Mature economies appear unable to grow faster than 3% per annum. Emerging economies, in catch up mode. grow faster. Hence emerging stock markets rise faster as well. See more about this 3%.
#2: Emerging markets had dramatically out performed major markets for seven years running. The stronger emerging markets can be seen via mutual fund performance. Look at the return for year to date, three and five years for Jyske Invest’s global and emerging market equity funds.
Fund Performance 1 year 3 years 5 years
Jyske Invest Global Equities -15.92% 23.67% 67.73%
Jyske Invest Emging Mkt Eqt. -12.57% 70.75% 181.31%
#3: Emerging markets dropped more but, recovered faster in both the 2006 and 2007 slumps.
These points suggest that while the thundering herd may shy away from a perceived emerging market risk…great…even explosive value is building.
Plus look again at what an investor who invested three years ago in the Emerging Market Portfolio would have gained even with this last year’s crash.
$100,000 in 2006 rose 114% so the portfolio became worth $214,000.
$214,000 in 2007 rose 122% so became worth $475,000.
In 2008, the portfolio lost 31.5% of its value or appx. $150,000. There was no forex loss on the loan…instead there was a small forex gain. The investor who started November 2005 with $100,000 would have about $325,000 Nov. 2008. That is a $225,000 gain on $100,000 invested over three years or about 75% rise per annum.
Investors should have reduced their position or leverage in the last year, but even if they had not, the perspective we see here is that the Emerging Market Portfolio has been an incredible investment even with the horrible 2008 performance thrown in.
This shows good three year performance in the sector that has been shown first to crash but first to recover… Good three year performance in the sector that has the best medium term performance… Good three year performance in the sector that has the most logical fundamental reason for future growth.
These facts put together should outweigh most of the negatives in this last year’s correction down.
Until next lesson, good global investing!
This is the end of our semester and it is question time. We’ll examine each portfolio and its annual performance. ASK QUESTIONS! Put BL in the subject line and email to me at email@example.com so I can spot and answer your question in these lessons.
Ecuador is inspiring because it is sunny, upbeat, friendly and so different from the doom and gloom that surrounds us weather wise, economically and socially up north.
I can have this when our son visits us in North Carolina and we take a dip in the creek.
Or this, a warm Pacific current, about 45 seconds stroll from our Ecuador beach condo.
This, chasing our horses on our Blue Ridge farm.
Or ride like this. Here my friend, Joe Cox, and I enjoy winter views of Cotacachi below.
Merri and I can walk in this…the entrance to our Farm in January.
Or we can hike around Lake Quicocha, a sacred Andean lake near our Inn El Meson de las Flores.
Of course this message is not really about weather…or flowers or even coming to Ecuador.
What our petunia shared is…be different…go wherever you find inspiration.
Get away from the gray humdrum…go where your horizons are expanded.
Inspiration is everywhere. Seek it. There has never been a better time for small business and an upbeat outlook on life.
One kind reader sent me two coffee mugs recently, enamel bumper stickers if you like, that said “Ille Gitimati Noli Carborundum.”
The translation is “Don’t let those who are illegitimate wear you down”.
It has never been thoughts less legitimate than those of loss and despair in these incredibly rich times…so look for inspiration. Success is waiting for you in the nooks and crannies where others do not go.
Learn more about economic safety this November. Join Merri, me and Jyske Global Asset Management in Cotacachi Ecuador. We’ll review economic conditions, Ecuador real estate, my entire portfolio and investing ideas for the months ahead.
Feb. 13-15 2009 International Business & Investing Made EZ
Stay on for our real estate tour. See the wonderful balconies in the Primavera condos at for sale at $46,000 in Cotacachi and much more.
Feb. 16-17 2009 Imbabura Real Estate tour
Here is one of our groups looking at houses for sale in Cotacachi…outside