A review of our model portfolios in 2008 shows that the blue chip portfolio dropped more than the emerging market portfolio.
Portfolio 11 and 12 month Performance
Green Portfolio Oct 2008 -56.08% Nov 2008 – 208.91%
Emerging Market Oct 2008 -73.79% Nov 2008 -131.78%
Dollar Short Oct 2008 -35.21% Nov 2008 – 58.50%
Danish Health Oct 2008 -92.18% Nov 2008 -146.81%
Infrastructure Oct 2008 -112.00% Nov 2008 -224.73%
Blue Chip Oct 2008 – 79.21% Nov 2008 -146.47%
This oddity is for one simple reason. The blue chip portfolio was leveraged more… (two times $100,000 invested and $200,000 borrowed) than the emerging markets portfolio.. The emerging markets portfolio was leveraged one time ($100,000 invested, $100,000 borrowed).
This suggests that leveraged low risk portfolios may perform better with less risk, than non leveraged or low leveraged high risk portfolios.
Take for example Jyske Bank and Jyske Global Asset Management’s (JGAM) approach to portfolio development.
JGAM for example develops 17 multi currency portfolios ranging from low risk to speculative and with or without US dollar investments.
They work with four multi currency asset classes:
Asset class #1 is multi currency fixed income investments (bonds).
Asset class #2 is multi currency equities.
Asset class #3 is multi currency alternatives (commodities metals etc).
Asset class #4 is multi currency cash.
Jyske translates these classes into risk profiles.
Here for example were JGAM’s recent multi currency portfolio asset allocation risk profile breakdowns.
Low Risk Multi Currency Portfolio Profile: Fixed Income 70%, Equities 20%, Alternatives 5%, Cash 5%.
Medium Risk Multi Currency Portfolio Profile: Fixed Income, 40%, Equities 50%, Alternatives 5%, Cash 5%.
High Risk Multi Currency Portfolio Profile: Fixed Income 10%, Equities 80%, Alternatives 5%, Cash 5%.
Speculative Multi Currency Portfolio Profile: Fixed Income 20%, Equities 60%, Alternatives 10%, Cash 10%.
The lesson is that a leveraged low risk portfolio may be safer and perform better than a non leveraged high risk portfolio. A leveraged medium risk profile may be safer and perform better than a non leveraged speculative profile.
You should however always review the added risks of leverage and never borrow more than you can afford to lose.
You should review your entire financial position with a financial adviser before leveraging any portfolio. Familiarize yourself and plan for a downside as well as upside.
To learn more about this and to check on current Jyske risk profiles, US investors should contact JGAM Thomas Fischer at email@example.com
Non US investors contact Jyske Bank Rene Mathys at firstname.lastname@example.org
Until next message may all your leverage be good.