Having an overseas banker who manages your global diversification has three main advantages… one is in multi currency experience… capability and placement. The second is legal asset protection. The third is diversification out of the local banking system.
However a myriad of regulations make it hard for non US banks to provide investment services for US citizens and especially US residents.
The regulations are so complex and penalties for non compliance so severe that most non US banks and financial services have simply stopped serving US customers.
Jyske Bank in Denmark has invested largely in its new subsidiary (Jyske Global Asset Management (JGAM) so they can continue serving US customers.
This series of lessons looks at the ways that US investors can use JGAM.
The main service JGAM offers for customers are fully managed accounts.
The fully managed accounts offer the benefits of steady, full time, management and because JGAM makes the investment decisions, US regulations allows the manager to buy any investment, anywhere in the world.
Investors can choose one of four risk levels, low, medium, high risk or speculative.
Each risk level has a different maximum and minimum asset allocation strategy.
Maximum Allocation
Low Risk Medium High
Bonds 100 80 40
Equities 40 80 100
Alternatives 20 40 60
Cash 100 100 100
Neutral Allocation
Low Risk Medium High
Bonds 80 50 20
Equities 20 50 80
Alternatives 0 0 0
Cash 0 0 0
This means for example that when the economic scenario is calm, a low risk portfolio would be invested about 80% in bonds and 20% in equities. However if JGAM’s investment committee felt there was more than normal risk in the market, they could have a low risk portfolio entirely in cash or in bonds.
During times when JGAM’s investment committee felt there was low risk and chances of opportunity… or risk of high inflation a low risk portfolio could have 40% of a low risk portfolio in equities and 20% in alternatives (commodities, metals etc.)
For example, June 25, 2009, JGAM’s Investment Committee feared that the bull market from March to June 2009 was optimistic beyond the economic fundamentals around the world.
There July 3rd update enforced this belief when it said:
The past week we spotted more “green shoots”, i.e. indications that we have hit the bottom and economic improvement lies ahead. Here are some of the indications:
In the UK nationwide house prices fell less than expected in June to -9.3% YoY (from -11.3%).
In Japan there was an improvement in small business confidence for June. Also, household spending turned positive in May to 0.3% YoY (from -1.3%).
In the US the 20-city Case-Shiller U.S. home price index fell by 18.1% in the year to April, slightly less than expected. The latest ISM manufacturing survey came in broadly, as expected, underscoring that the worst of the downturn has passed, but a recovery has not yet begun.
However, there were also signs that the recession is maybe not over yet, e.g. in the US new orders ticked back below the 50 line, albeit after rising sharply the prior three months. Also, payrolls disappointed market expectations, with a 467,000 contraction in total employment. The unemployment rate was little changed at 9.5%. Around 6.5 million jobs have been lost since the downturn began in December 2007.
We conclude it’s still too early to call off the scenario of economic and financial distress. Apparently, central banks are of the same opinion:
The Swedish Riksbank reduced its repo rate to 0.25%. The central bank is also extending SEK 100 billion worth of loans to the financial sector to help mitigate problems arising from the Baltics.
The European Central Bank (ECB) opted to leave its benchmark policy rate unchanged at 1%. While the statement that followed “the risks to the economic outlook are balanced”, suggested the next tightening cycle is still at least a year away.
Therefore JGAM’s investment committee has been cautious and is continuing with a lower than normal investment strategy.
They continued with a neutral position on fixed income, an underweight on equities and overweight on both alternatives and cash.
Neutral Allocation
Low Risk Medium High
Bonds 80 50 20
Equities 0 30 40
Alternatives 0 10 20
Cash 20 10 20
Managed accounts can also be leveraged. For example an investor could put up $100,000 and borrow up to an extra $200,000 to invest in the account. The loan can be in a choice of several currencies, Swiss franc, Japanese yen, euro, US dollars etc. and can be changed from time to time.
For example in the June 25 meeting, the committee expected the US Dollar to be in a long term downtrend, so it shifted its euro loans to US dollar loans and continued to use less than the maximum level of loans.
Gary
As a multi currency subscriber, you receive a reduced fee for our upcoming July 24-26 International business and investing seminar. The normal fee is $749. You pay only $500. You save $249.
July 24-26 IBEZ North Carolina
