Monday, October 5, 2009

Poor week, but we did reasonably well with our model portfolios

Week 40 was 'another bad week'. The third out of five when we look at the overall period from week 36 - 40 and the second in a row. As stated earlier, we expect our four Emerging Market model portfolios to outperform in bad weeks. This is exactly what our EM Loser and EM Winner portfolio did. The other two model portfolios (EM Next11 and EM Morningstar Favorites) dropped a bit further, but compared to the MSCI World index - allegedly the safest of the equity index that we analyze - it was all quite reasonable. When looking at the overall performance over the first five weeks, we are glad to see that our EM Loser (i.e. contrarian) portfolio is now the best. Up until this week the MSCI EM Index portfolio was better, but after yet another bad week we passed that index and are now clearly ahead of it. The EM Loser portfolio has a cumulative return of 6.26% versus 5.86% for the MSCI Index. The MSCI World index shows a negative cumulative return of -0.47%.

Performance of our four model portfolios; weeks 36-40
On the currency front there weren't very much significant movements. The Mexican peso lost some strength vis-a-vis the other currencies and the US Dollar, but that was about it. When looking at the US Dollar, the Greenback didn't gain much ground compared to other currencies but didn't lose much either. This was definitely not a 'currency week'.
  
 Currency Returns week 36-40
De-facto it was really a week of uncertainty. There weren't many good reports about Western economies, but on the other hand there was the information that there are clear signals that the bottom of the US housing market has probably been reached. Prices seem to be going up again (finally!). Obviously, bad news from the Philippines (floods) and Indonesia (earthquake) didn't really help us, albeit that the affected firms (San Miguel from the Philippines and Telekom Indonesia from Indonesia) didn't really show extraordinary performance compared to other firms in our portfolios. It was typically a week of waiting. Waiting for a signal.

If anything, what we did consider an interesting signal was the fact that Obama's visit to Copenhagen didn't win Chicago the Olympic Games 2016. We hoped that the Games would go to Rio de Janeiro as clear signal that Emerging Markets are now really a force to reckon with and so it happened. The world is changing and it is moving in a direction that we foresaw and hope for. It is an extra stimulus to continue with our Triple E strategy of Emerging Market Empowerment.

Our decision to split the cash/money market allocation into two equally large components, one in US Dollars and the other in Euros, worked out well. The answer is YES. First of all, because the interest rate in Europe was substantially higher than the one in the US and second, because we realized a (small, but substantial) currency gain of 0.12% on the Euro over this first week of mixed cash allocation. But graph 1 above shows clearly that it was NOT because of currency returns that our strategies performed reasonably well. It is mainly the good performance in weeks 37 and 38 that explain the performance over the period from week 36 to week 40.

When looking at the individual firms in our portfolios, National Bank of Pakistan remains our number one with a cumulative return of 23.19%. Other firms in the top-3 are: ICICI Bank (India) with a total return of 20.64% and mining giant Vale from Brazil (+16.06%).


On the negative side, our worst investments are America Movil (Mexico) with a negative return of -9.37%, and CEMEX (Mexico) with a loss of -8.58%, and Turkiye Is Bankasi with a negative return of -8.49%.


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