Macro Tsimmis

intelligently hedged investment

Posts Tagged ‘EWM’

McRIBS Reconsidered: Taking Currency Fluctuations Into Account

Posted by intelledgement on Tue, 27 Dec 11

A few weeks ago, we published an article reviewing the performance of the stock markets of 16 nations—including all the BRICs—for the first 10 years of the 21st century…. An astute commenter pointed out that my analysis hadn’t factored in the decline of the dollar. The commenter stated that the dollar had declined 20% in value in the first 10 years of the century—it turns out that inflation from 2001-2010 inclusively actually amounted to a cumulative 21%—and thus, he complained that the chart showed the S&P 500 value as flat for the decade (a compounded annual growth rate of fractionally less than 0%) when in reality the absolute value of an investment in the S&P 500 from 2001 to 2010 would have been down by 20% or so. Now, all the bourse indexes were valued in terms of the nominal value of their respective currencies…. However, using nominal native currencies over 10 years actually does not necessarily provide a perfectly level playing field, because it ignores currency fluctuations. In looking at the changes in value for each currency relative to the dollar over the decade, these were not insignificant.

And so this sequel article published earlier today by The Motley Fool, Reconsidering the “New” BRICs, adds in the effects of ten years of currency fluctuations. Turns out some markets—e.g., Australia up 4% annually for ten years in nominal terms but up 10% annually when we take the appreciation of the Australian dollar into account—did materially better…and some did worse.

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Out with the BRICs and in with McRIBS

Posted by intelledgement on Thu, 20 Oct 11

It has been a decade since Goldman Sachs economist Jim O’Neill coined the acronym “BRIC” (Brazil-Russia-India-China) as a handy shorthand term for emerging-market economies that were likely to experience above-average growth in the process of converting from predominantly rural, agrarian living to more urban, industrial modes.… [T]here’s not much debate among macro-analysts as to the continued robust validity of O’Neill’s basic insight. It would take a lollapalooza of a black swan to dissipate the inertia of the BRICs—something on the order of an epidemic or a catastrophic natural disaster that killed many millions. So, in that light, the pertinent question is not where the BRICs bus is headed, but rather, who is going along for the ride.

And that question is the focus of Forget the BRICs; Here’s a Better Way to Think About Emerging Markets, published earlier today by The Motley Fool.

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3Q10 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Wed, 13 Oct 10

Summary of Intelledgement’s model macro strategy model investment portfolio performance as of 30 September 2010:

Position   Bought   Shares Paid Cost Now Value   Change       YTD         ROI       CAGR  
FXI 03-Jan-07 243 37.15 9,035.45 42.82 11,006.30 8.87% 2.30% 21.81% 5.40%
IFN 03-Jan-07 196 45.90 9,004.40 36.37 10,127.32 13.44% 12.33% 12.47% 3.18%
DBA 13-Mar-08 235 42.50 9,995.50 27.87 6,549.45 16.17% 5.41% -34.48% -15.28%
EWZ 3-Aug-09 165 60.39 9,972.35 76,95 13,122.68 23.47% 3.13% 31.59% 26.75%
GLD 21-May-10 95 115.22 10,953.90 127.91 12,156.39 5.12% 19.20% 10.98% 33.40%
SLV 21-May-10 636 17.29 11,004.44 21.31 13,586.23 16.98% 28.84% 23.46% 79.17%
DOG 25-May-10 204 54.01 11,026.04 48.16 9,824.64 -10.83% -7.97% -10.90% -28.05%
PSQ 25-May-10 246 44.74 11,014.04 38.85 9,556.88 -14.16% -11.04% -13.23% -33.30%
SH 25-May-10 201 9.41 10,978.58 48.90 9,828.90 -11.11% 6.96% -10.47% -27.07%
LQD 11-Aug-10 99 110.60 10,957.40 113.09 11,237.89 n/a 11.83% 2.56% 20.28%
cash -3,942.10 19,027.59
Overall 31-Dec-06 100,000.00 126,024.27 4.23% -0.52% 26.02% 6.37%
Macro HF 31-Dec-06 100,000.00 121,336.09 0.95% 3.37% 21.34% 5.30%
S&P 500 31-Dec-06 1,418.30 1,141.20 10.72% 2.34% -19.54% -5.63%

Position = security the portfolio owns
Bought = date position acquired
Shares = number of shares the portfolio owns
Paid = price per share when purchased
Cost = total paid (price per share multiplied by # shrs plus commission)
Now = price per share as of date of report
Value = what it is worth as of the date of report (price per share multiplied by # shrs plus value of dividends)
Change = on a percentage basis, change since last report (not applicable for positions new since last report)
YTD (Year-to-Date) = on a percentage basis, change since the previous year-end price
ROI (Return-on-Investment) = on a percentage basis, the performance of this security since purchase
CAGR (Compounded Annual Growth Rate) = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the Intelledgement Macro Strategy Investment Portfolio (IMSIP) is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2009 inclusively) provides a CAGR of around 14.0%. For comparison’s sake, we also show the S&P 500 index, which since January 1950 has produced a CAGR of around 7.2%. Note that for our portfolio’s positions, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance. Finally, The “cash” line for the “Cost” column is negative because the total cost of the positions the IMSIP presently hold exceeds the total cash we started with—which is, of course, a good thing—and profits from earlier sales have been reinvested into more recently acquired positions.

Transactions: Less volatility this quarter, and fewer transactions…could this be causal relationship? 🙂

Performance Review: Wow, a mirror image quarter! We were up 4%, which normally is good, but we lost to the market (+11%) by seven  points. This is an almost perfect reversal of the prior quarter, in which we lost 4% but beat the market (-12%) by eight points. The IMSIP is just a rock of stability, relatively speaking. We did beat the macro hedge fund index (+1%) by three points. Heck, those guys are even more stable than we are—they gained 1% in 2Q10, too.

Tactically, we ended the quarter still pretty neutral, with three BRIC country long ETFs balanced by three index  short ETFs, plus three commodity plays including two flight-to-safety/inflation insurance precious metal funds and our agriculture ETF plus our new high grade corporate bonds ETF, which is a bet on the Fed keeping interest rates low. Our BRIC ETFs overall were up—as one would expect in a +11% market: Brazil (EWZ, +23%), India (IFN, +13%), and China (FXI, +9%). The commodity ETFs also did well, with SLV +17%, DBA +16, and GLD +5%. The three index short ETFs had a tough quarter, of course: DOW (DOG) -11%, NASDAQ (PSQ) -14%, and S&P 500 (SH) -11%. Our newly acquired corporate bond fund (LQD) was up 3% in a month-and-a-half. We also made a profit on our sale of the high tech ETF (IYW), and took a loss unloading the treasuries short fund (TBT).

Overall, we are now 46 points ahead of the market in terms of total return-on-investment: +26% for us and -20% for the S&P 500 in the 45 months since the inception of the IMSIP at the end of 2006. We are five points ahead of our benchmark, the GAI Global Macro Hedge Fund Index, +26% to +21%. In terms of compounded annual growth rate, after three years IMSIP is +6%, the GAI hedgies are at +5%, and the S&P 500 is -6%.

Analysis: The fix is in.

We can argue about why this is happening. Some see dark bankster conspiracies aimed purposefully at destroying confidence in national governments and creating chaos in order to facilitate a world-wide takeover by the powerful elite. Some see an inherent flaw in the democratic process that makes it impossible for leaders to engage in long-term thinking, making the system vulnerable to situations where short-term pain is needed to avert long-term catastrophe…because the very design of the system ensures that short-term pain is always avoided at all costs. Some see nothing more remarkable than the inexorable rise and fall of empires at work here.

Leaving aside the theoretical explanations, as a practical matter, it is more and more clear that the central banks in the developed world are hell-bent on fending off the collapse of any “too big to fail” (TBTF) institutions at all costs. All the Sturm und Drang about the financial reform legislation that was supposed to end TBTF, all the jawboning about greedy bankers and unconscionable bonuses, all the expressions of piety with respect to the need for a strong dollar…all fade to insubstantial misdirection beside the solid reality of never-ending bailouts and so-called “quantitative easing.”

It was bad in the 50s and 60s when the USA financed both wars and increasingly expensive social programs via debt and the dollar began to weaken. It was worse in the 70s and 80s when we divorced the dollar from gold entirely, continued to run up debts, and accelerated the process of eschewing production and manufacturing in favor of financial “services” and ever-more arcane ways to manipulate money. In the 90s and the first decade of the 21st century, we engineered asset bubbles in real estate and stocks to inveigle folks to keep accumulating individual debt and eschew savings, even as a combination of irresponsible new entitlements obligations and an aging population worsened the debt situation of the government.

2008 was a watershed. Or, to borrow an analogy from South African finance minister Pravin Gordhan, a waterpipe—a broken one. Not a pipe we could see, because it was behind the wall, but we could hear the water dripping and see the stains on the wall. It was obvious to everyone that the proximate cause of the crash was the debt-funded asset bubbles. We could have chosen to own up to the errors of our ways, punished the guilty, sorted out the mess of the bursting bubbles, and applied our considerable energies to moving forward building a stabler, healthier financial system with safeguards against the abuses that brought us to this pass.

But instead, we chose to reinflate the bubbles! Rather than allowing housing prices to fall to sustainable levels, we bailed out homeowners who owed more than their properties were worth. Rather than allowing banks who had written bad loans to fail, we bailed them out, by artificially lowering interest rates and firing up the printing presses so they could borrow cheaply and reinvest the funds to make a profit and earn their way out of insolvency. Never mind that [a] it won’t work and [b] in trying to make it work we risk igniting a ruinous currency war. In effect, we threw good public money after bad private money, directly increasing the debt and indirectly—by weakening the dollar—reducing the wealth of all citizens (and their children).

Instead of fixing the broken pipe, we replastered the wall and painted over the water stains. The fix is in, not in the sense of repairing the damage, but in the sense that unscrupulous insiders have rigged it—while we are meant to believe that things are getting better, in fact what is happening is that those in the know have bet on the room being flooded, sooner or later.  The flood, of course, will not be water. It will be wheelbarrels full of worthless U.S. dollars.

Conclusion: We know that the foolhardy efforts of the central banks to save the corrupt and insolvent financial system are doomed. What we don’t know is how and when that doom will play out. For the past several months, we have been betting that things may fall apart sooner rather than later; hence our commodities and short positions. There are so many potential black swans flitting about—bad real estate loans, bad banks, insolvent local and state governments, sovereign debt, hyperinflation, potential social unrest in China, Iran and their nukes, North Korea and their nukes, Pakistan and their nukes, the threat of a major terrorist attack, a plague, global warming—that one or more could land at any moment.

In our best effort to avoid black swan excrement, as of 1 October, we continue to hold three long emerging market ETFs in the portfolio: China (FXI), India (IFN), and Brasil (EWX). We believe that in a deleveraging environment, the economies that are still growing will fare far better than those that are not; thus these long positions will be the last we will surrender if and when things get really dicey. Already, things are somewhat dicey…enough so that we hold three inverse index ETFs (that go up when whatever they are tied to goes down) to serve as insurance against a sudden worsening of the sovereign debt crisis: the short DOW index ETF (DOG), the short NASDAQ index ETF (PSQ), the short S&P 500 index ETF (SH). We are considering unloading some or all of these shorts because [a] the cost of holding them has risen along with the strong 3Q10 rally in the stock market and [b] our concern about hyperinflation in the face of a likely second round of quantitative easing by the Fed after election day is daunting. As it is, the overall performance of macro funds has been constrained by the prevalence of significant short positions,  in concert with the way the macros are pointing but—thanks at least in part to profligate quantitative easing and related shenanigans by the central banks—contrary to the way the markets are behaving.

We also still have three long commodity plays: the agriculture ETF (DBA) and precious metals ETFs for gold (GLD) and silver (SLV). The dollar is weakening again and the waxing of that hyperinflationary scenario has us considering a short play there.

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2Q10 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Wed, 14 Jul 10

Summary of Intelledgement’s model macro strategy model investment portfolio performance as of 30 June 2010:

Position   Bought   Shares Paid Cost Now Value   Change       YTD         ROI       CAGR  
FXI 03-Jan-07 243 37.15 9,035.45 39.13 10,109.63 -5.69% -6.03% 11.89% 3.26%
IFN 03-Jan-07 196 45.90 9,004.40 30.25 8927.80 -2.75% -0.98% -0.85% -0.24%
DBA 13-Mar-08 235 42.50 9,995.50 23.99 5,637.65 -0.95% -9.27% -43.60% -22.07%
TBT 21-Jan-09 233 42.84 9,989.72 35.48 8,266.84 -27.13% -28.87% -17.25% -12.34%
EWZ 3-Aug-09 165 60.39 9,972.35 61.83 10,628.21 -15.19% -17.13% 6.58% 7.28%
IYW 29-Sep-09 208 51.86 10,794.88 51.60 10,771.70 -11.48% -10.32% -0.21% -0.29%
GLD 21-May-10 95 115.22 10,953.90 121.68 11,564.54 n/a 13.39% 5.57% 64.11%
SLV 21-May-10 636 17.29 11,004.44 18.21 11,614.63 n/a 10.10% 5.54% 63.69%
DOG 25-May-10 204 54.01 11,026.04 54.01 11,018.04 n/a 3.21% -0.07% -0.73%
PSQ 25-May-10 246 44.74 11,014.04 45.26 11,133.96 n/a 3.64% 1.09% 11.61%
SH 25-May-10 201 9.41 10,978.58 55.01 11,057.01 n/a 4.66% 0.71% 7.49%
cash -13,769.30 10,174.48
Overall 31-Dec-06 100,000.00 120,904.29 -4.01% -4.56% 20.90% 5.58%
Macro HF 31-Dec-06 100,000.00 120,194.43 0.70% 2.39% 20.19% 5.40%
S&P 500 31-Dec-06 1,418.30 1,030.71 -11.86% -7.57% -27.33% -10.09%

Position = security the portfolio owns
Bought = date position acquired
Shares = number of shares the portfolio owns
Paid = price per share when purchased
Cost = total paid (price per share multiplied by # shrs plus commission)
Now = price per share as of date of report
Value = what it is worth as of the date of report (price per share multiplied by # shrs plus value of dividends)
Change = on a percentage basis, change since last report (not applicable for positions new since last report)
YTD (Year-to-Date) = on a percentage basis, change since the previous year-end price
ROI (Return-on-Investment) = on a percentage basis, the performance of this security since purchase
CAGR (Compounded Annual Growth Rate) = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the Intelledgement Macro Strategy Investment Portfolio (IMSIP) is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2009 inclusively) provides a CAGR of around 14.0%. For comparison’s sake, we also show the S&P 500 index, which since January 1950 has produced a CAGR of around 7.3%. Note that for our portfolio’s positions, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: The sudden return of volatility in 2Q10 had us jumping through hoops with not only more transactions than usual but some hard zigging and zagging…but in the end, all profitable (at least the closed trades):

Performance Review: Normally you’d have no difficulty characterizing a 4% loss as a bad quarter, but when you still beat the market (-12%) by eight points, the waters get a bit muddy. We did lose to the hedgies (±0%) by five points. Tactically, reflecting the schizoid market we are close to neutral here, with our three BRIC country funds plus our high tech fund bullish, our four short funds bearish, plus three commodity plays including two flight-to-safety/inflation insurance precious metal funds. Our BRIC ETFs overall were down—as one would expect in a -12% market: India (IFN, -3%), China (FXI, -6%), and Brazil (EWZ, -15%); plus the emerging markets-oriented US Technology ETF (IWY) tracked the market (-11%, which BTW did edge out the NASDAQ for the quarter by one point, for those keeping score at home). Our repurchase of the precious metal EFTs looks good so far with GLD +13% and SLV +10%; the agriculture commodities ETF (DBA) held its own (-1%). Our UltraShort Lehman 20+Year Treasury ETF (TBT), which goes up when the value of long-term treasuries decline, as they tend to do when long-term interest rates rise, had a disastrous quarter (-27%), as the European sovereign debt crisis sparked a flight-to-safety run on US government bonds, and interest rates consequently plummeted. Some of those losses were offset by profits on the purchase and sale of the three index short ETFs for the DOW (DOG), NASDAQ (PSQ), and S&P 500 (SH) during the quarter; we purchased them again towards the end of the quarter and were slightly ahead. We also made a profit on our sale of the Malaysia ETF (EWM), although the sale price was a tad lower than the close at the end of last quarter.

Overall, we are now 48 points ahead of the market in terms of total return-on-investment: +21% for us and -27% for the S&P 500 in the three-and-a-half years since the inception of the IMSIP at the end of 2006. We are one point ahead of our benchmark, the GAI Global Macro Hedge Fund Index, +21% to +20%. In terms of compounded annual growth rate, after three years IMSIP is +6%, the GAI hedgies are at +5%, and the S&P 500 is -10%.

Analysis: After five straight quarters of declining volatility, things got interesting—as in, “may you live in interesting times”—in 2Q10. A combination of continued slower-than-expected economic growth and the specter of sovereign debt defaults among European countries combined to spook the markets big time. The potential threat of defaults by any of the PIIGS (Portugual-Ireland-Italy-Greece-Spain) is considered to be extremely serious because it could engender a cascade of bank collapses—all over Europe and beyond—similar to the danger in 2008 attendant to a collapse of AIG, Bear Stearns, Citibank, Freddie, Fannie, Merrill Lynch, and/or Wachovia (all of whom were eventually bailed out by the US government). The powers-that-be most definitely consider that this would be a catastrophic eventuality, to be avoided at all costs. Thus the likelihood that central banks will once again deploy taxpayer dollars to bailout the moneyed elites, this time for their fecklessness in loaning money to over-extended governments instead of for their foolishness being lured into ludicrous spectulative bets by Goldman Sachs and their ilk.

Our perspective is that this is yet another swerve in the extended oscillating skid which we have written of before. The combination of intrinsically short-sighted democratically elected—and, more to the point, re-elected—politicians and a culture that increasingly craves instant gratification has done us in. We got into this situation by overspending, borrowing beyond our means, and speculating on bubble-valued assets. The U. S. government’s attempts to address our problems have generally been short on addressing systemic issues and long on creating the temporary illusion that things are getting better.

The proper way to defeat an oscillating skid is to turn into it, thus affording your tires traction and enabling you to regain control. In our case, we could do this by allowing the insolvent financial institutions to go out of business, as they so richly deserve to. We could require more stringent capital requirements for both lenders and borrowers doing business in the USA. We could clean house at the regulatory agencies so they will actually enforce the rules already on the books (e.g., not allowing naked short selling). We could make it illegal for ratings agencies to accept payment from any company they rate. We could create an exchange for the trading of derivatives. We could encourage good corporate governance practices (e.g., favoring for government contracts companies that reward management with long-term stock options rather than instant cash bonuses so that corporate leaders’ interests were better aligned with the long-term interest of shareholders). We could reduce social welfare spending commitments to sustainable levels going forward.

But instead, we are fighting the skid at every turn. We are throwing good taxpayer money after bad propping up the “too big to fail” banks. We are debasing our currency in futile attempts to reinflate the housing and credit bubbles that got us into this latest fix in the first place. Instead of addressing the systemic problem of overcommitted government largesse, we are expanding the role of government and increasing our commitments.

Conclusion: There is no such thing as a free lunch. Someone always pays, sooner or later. For decades, we—through our elected leadership—have relentlessly whipped out our national credit card to, in effect, pass the debt on to future suckers. Well, if you have a mirror handy, you can meet one of those future suckers right now. The government is still flashing plastic, but now it is a debit card, and the account being charged is the one that’s comprised of your life savings.

In our best effort to avoid those charges, as of 1 July, we continue to hold four long emerging market ETFs in the portfolio: China (FXI), India (IFN), Brasil (EWX), and US high tech (IYW which we consider an emerging market play as some two-thirds of the revenue of the companies comprising the ETF are ex-USA derived). We believe that in a deleveraging environment, the economies that are still growing will fare far better than those that are not; thus these long positions will be the last we will surrender if and when things get really dicey. Already, things are somewhat dicey…enough so that we now have four inverse ETFs (that go up when whatever they are tied to goes down) to serve as insurance against a sudden worsening of the sovereign debt crisis (which could be either European- or domestic state/local government-based): the short DOW index ETF (DOG), the short NASDAQ index ETF (PSQ), the short S&P 500 index ETF (SH), and the inverse long-term Treasury bonds ETF (TBT). We are considering unloading this last because the (up-to-now) European sovereign debt crisis has engendered a perverse flight-to-safety that is driving U.S. bond rates down (and the values of the bonds up), even though in the long run the USA is no more solvent than Greece. We believe the value of those bonds will eventually plummet but we have held TBT for over a year now with no joy and it could be we can do better with the funds between now and a more opportune time to be short treasuries.

We also still have three long commodity plays: the agriculture ETF (DBA) and precious metals ETFs for gold (GLD) and silver (SLV). The dollar actually stronger again last quarter, the flight-to-safety reaction to the European sovereign debt crisis resulted in increased gold and silver prices anyway. In the longer run, we expect another massive round of central bank quantitative easing in response to the next crisis—or the one after that—and in the deluge of dollars that results, the commodities positions should provide some dry shelter for our assets.

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SELL MSCI Malaysia Index (EWM)

Posted by intelledgement on Fri, 07 May 10

As those who were with us when we launched this portfolio back at the end of 2006 may recall, Malaysia is one of our favorite places to invest outside of the USA, and the iShares MSCI Malaysia Index ETF was one of our original 11 positions. We are looking forward to getting back here, hopefully soon. But for now, with systemic risk at an elevated level thanks to the Euro Zone’s uneven response to the PIIGS sovereign debt crises, we are stepping aside—at a profit that beats the market—to raise cash and reduce risk.

Previous EWM-related posts:

Posted in A.1 Investment Recs | Tagged: | Leave a Comment »

1Q10 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Wed, 14 Apr 10

Summary of Intelledgement’s model macro strategy model investment portfolio performance as of 31 March 2010:

Position   Bought   Shares Paid Cost Now Value Change     YTD         ROI       CAGR  
FXI 03-Jan-07 243 37.15 9,035.45 42.10 10,719.81 -0.36% -0.36% 18.64% 5.40%
IFN 03-Jan-07 196 45.90 9,004.40 31.54 9,180.64 1.83% 1.83% 1.96% 0.60%
DBA 13-Mar-08 235 42.50 9,995.50 24.22 5,691.70 -8.40% -8.40% -43.06% -24.04%
TBT 21-Jan-09 233 42.84 9,989.72 48.69 11,344.77 -2.39% -2.39% 13.56% 11.30%
EWM 21-Jul-09 1,062 9.41 10,001.42 11.68 12,554.96 9.85% 9.85% 25.53% 38.86%
EWZ 3-Aug-09 165 60.39 9,972.35 73.64 12,531.42 -1.30% -1.30% 25.66% 41.57%
IYW 29-Sep-09 208 51.86 10,794.88 58.39 12,168.42 1.58% 1.48% 12.72% 27.00%
cash 31,206.28 51,763.29
Overall 31-Dec-06 100,000.00 125,955.00 -0.58% -0.58% 25.96% 7.37%
Macro HF 31-Dec-06 100,000.00 119,357.61 1.68% 1.68% 19.36% 5.60%
S&P 500 31-Dec-06 1,418.30 1,169.43 4.87% 4.87% -17.55% -5.77%

Position = security the portfolio owns
Bought = date position acquired
Shares = number of shares the portfolio owns
Paid = price per share when purchased
Cost = total paid (price per share multiplied by # shrs plus commission)
Now = price per share as of date of report
Value = what it is worth as of the date of report (price per share multiplied by # shrs plus value of dividends)
Change = on a percentage basis, change since last report (not applicable for positions new since last report)
YTD (Year-to-Date) = on a percentage basis, change since the previous year-end price
ROI (Return-on-Investment) = on a percentage basis, the performance of this security since purchase
CAGR (Compounded Annual Growth Rate) = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the Intelledgement Macro Strategy Investment Portfolio (IMSIP) is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2009 inclusively) provides a CAGR of around 14.0%. For comparison’s sake, we also show the S&P 500 index, which since January 1950 has produced a CAGR of around 7.3%. Note that for our portfolio’s positions, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: We had another quiet quarter, with only a couple of sales:

Performance Review: An indifferent quarter for IMSIP, as we were down 1%, while the S&P 500  was up 5% and the macro hedge funds up 2%.Tactically, despite our deep skepticism about the validity of the continued strong market rally, we remain mildly bullish here. Our emerging market ETFs overall were slightly up: Malaysia (EWM, +10%), India (IFN, +2%), and China (FXI, flat), and Brazil (EWZ, -1%). As mentioned previously, we sold our gold and silver commodity ETFs—prematurely in the event, as both ended the quarter higher than they were 9 Feb when we sold—but our remaining commodity play, agriculture, was down (DBA, -8%). The US Technology ETF (IYW) was up 1% for us; if it continues to lag the NASDAQ index—which was up 4% in the quarter—we will likely trade it in. Our one short position, the UltraShort Lehman 20+Year Treasury ETF (TBT), which goes up when the value of long-term treasuries decline, as they tend to do when long-term interest rates rise, was down 2% and rates remained stubbornly low during the quarter despite torrents of fresh debt offerings by the U.S. Treasury.

Overall, we are now 44 points ahead of the market in terms of total return-on-investment: +26% for us and -18% for the S&P 500 in the three years and three months since the inception of the IMSIP at the end of 2006. We are seven points ahead of our benchmark, the GAI Global Macro Hedge Fund Index, +26% to +19%. In terms of compounded annual growth rate, after three years IMSIP is +7%, the GAI hedgies are at +6%, and the S&P 500 is -6%.

Analysis: The market doggedly continues to accentuate the positive, up yet another 5% in the quarter, while volatility—a good fear indicator, which set a new all-time high in 4Q08—declined for the fifth straight quarter, actually reaching the historical average. While the U.S. unemployment rate remained unchanged at 9.7% in March—which was good compared to the steady increases in 2009—there was actually job growth (+162,000 non-farm jobs). Corporate profits were strong again in 1Q10 and consumer spending—evidently powered by the Energizer bunny—somehow continues to outstrip gains in personal income month-after-month:“Personal income increased $1.2 billion, or less than 0.1 percent, and…[p]ersonal consumption expenditures (PCE) increased $34.7 billion, or 0.3 percent,” in February, according to the latest Bureau of Economic Analysis data. Inflation and interest rates (except for credit card debt) remain low, and the stock market has now recovered 75% since the March 2009 low (S&P 500 666.79 on 6 Mar 09).

As we continue to point out, we got into this situation by overspending, borrowing beyond our means, and speculating on bubble-valued assets. In previous reports, we have lamented that the U. S. government’s attempts to solve our problems have generally made things worse, whilst creating the temporary illusion that things are getting better. We recently came across a presentation by Dylan Ratigan of MSNBC that does a good job illuminating this sad situation, which Mr. Ratigan ascribes to evil intent (presented below in two parts):

We expect there are some bad actors but in general, it is our belief that most of what has happened is due to ignorance and unintended consequences. Mr. Ratigan is spot on in lamenting that most members of Congress have no clue how our financial system functions…but in that lack, they well reflect the populace at large. Our political leaders surely intended well, for example, when they mandated that mortgage loans be made available to folks who previously did not qualify back in 1999, and the Fed fed the housing bubble in the 2000s by keeping interest rates low. Get more folks owning their own homes, stimulate the economy, what’s not to like? But the resulting poisonous stew of insidious incentives for everyone involved to act in their own short-term best interests—inveigling folks to overpay for properties they couldn’t afford in the first place with the expectation that with prices sure to keep rising, they could sell to the greater fool for a profit—then packaging the resultant mortgage-backed securities, mislabeling them a high-grade with the connivance of the ratings agencies and selling them to credible financial institutions, etcetera, etcetera. Just about everyone behaved short-sightedly with little if any regard for systemic risk; there is plenty of blame to go around.

Where we do agree with Mr. Ratigan is with respect to his criticism of what is happening—or, in some cases, not happening—now: the continued attempt to reflate values back up to tulip bulb mania levels, the continued assumption of the debts of so-called “too-big-to-fail” institutions by the government, the failure to pass meaningful reforms such as sundering the cozy relationship between ratings agencies and the institutions who create the equities to be rated—as insane as this sounds, currently the former are paid by the latter—and creating an exchange for credit default swaps and other esoteric financial instruments to ensure transparency and facilitate the self-governing influence of market forces—not to mention creating a mechanism for dismantling big failed financial institutions in an orderly way and holding their leadership personally accountable for their failures which would better align their interests with that of the owners and society as a whole.

For that matter, why are we bailing these failed institutions out by assuming their debts? And why are we undertaking additional obligations such as health care and dubious stimulus programs on top of the existing deficits plus the imminent demographic-driven shortfalls in entitlements funding? Why are we focused on heath insurance and cap-and-trade when the real threat to our way of life is our failure to understand and address our financial failings?

Conclusion: Sadly but surely, we remain confident that the worst is yet to come. However, we cheerfully admit we have no idea when. Perception is reality, and so long as the market perceives that things are hunky dory—as it manifestly does now—it is a greater risk to capital to fight it (go short) than to go with the flow.

Accordingly, as of 1 April, we continue to hold five long emerging market ETFs in the portfolio: China (FXI), India (IFN), Brasil (EWX), Malaysia (EWM), and US high tech (IYW which we consider an emerging market play as some two-thirds of the revenue of the companies comprising the ETF are ex-USA derived). Most of these would go—and be replaced by inverse index ETFs (that go up when the market goes down) if and when things get dicey again.

We also still have one long commodity play and a short on treasuries as hedges against the decline of the dollar: the agriculture ETF (DBA) and the inverse long-term Treasury bonds ETF (TBT). The dollar actually was stronger last quarter, and we sold our gold and silver ETFs in anticipation that a flight-to-safety reaction to the European sovereign debt crisis would buttress it even more, and deflate commodity prices. That did not happen and we are not likely to remain so unhedged against a dollar decline for a lengthy period because the longer we sit on a bench in the station, the greater that chance that train will leave without us.

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4Q09 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Fri, 15 Jan 10

Summary of Intelledgement’s model macro strategy model investment portfolio performance as of 31 December 2009:

Position   Bought   Shares Paid Cost Now Value Change YTD     ROI       CAGR  
FXI 03-Jan-07 243 37.15 9,035.45 42.26 10,758.69 3.66% 44.89% 19.07% 5.98%
GLD 03-Jan-07 142 63.21 8,983.82 107.31 15,238.02 8.56% 24.03% 69.62% 19.22%
IFN 03-Jan-07 196 45.90 9,004.40 30.70 9,016.00 5.31% 39.69% 0.13% 0.04%
SLV 03-Jan-07 700 12.31 8,625.00 16.54 11,577.30 0.97% 47.67% 34.23% 10.29%
DBA 13-Mar-08 235 42.50 9,995.50 26.44 6,213.40 3.85% 0.99% -37.84% -23.20%
TBT 21-Jan-09 233 42.84 9,989.72 49.88 11,622.04 13.47% 32.20% 16.34% 17.43%
EWM 21-Jul-09 1,062 9.41 10,001.42 10.62 11,429.24 6.13% 47.50% 14.28% 34.86%
EWZ 3-Aug-09 165 60.39 9,972.35 74.61 12,691.47 13.67% 113.23% 27.27% 79.88%
IYW 29-Sep-09 208 51.86 10,794.88 57.54 11,979.14 10.86% 63.65% 10.97% 50.50%
cash 13,597.46 26,161.66
Overall 31-Dec-06 100,000.00 126,686.96 6.01% 19.84% 26.69% 8.20%
Macro HF 31-Dec-06 100,000.00 117,384.80 0.47% 9.43% 17.38% 5.49%
S&P 500 31-Dec-06 1,418.30 1,115.10 5.49% 23.45% -21.38% -7.70%

Position = security the portfolio owns
Bought = date position acquired
Shares = number of shares the portfolio owns
Paid = price per share when purchased
Cost = total paid (price per share multiplied by # shrs plus commission)
Now = price per share as of date of report
Value = what it is worth as of the date of report (price per share multiplied by # shrs plus value of dividends)
Change = on a percentage basis, change since last report (not applicable for positions new since last report)
YTD (Year-to-Date) = on a percentage basis, change since the previous year-end price
ROI (Return-on-Investment) = on a percentage basis, the performance of this security since purchase
CAGR (Compounded Annual Growth Rate) = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the Intelledgement Macro Strategy Investment Portfolio (IMSIP) is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2009 inclusively) provides a CAGR of around 14.0%. For comparison’s sake, we also show the S&P 500 index, which since January 1950 has produced a CAGR of around 7.3%. Note that for our portfolio’s positions, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: We had an uncharacteristically quiet quarter, with only some year-end coupon clipping to break the monotony.

  • 21 Dec – FXI dividend of $0.222/shr
  • 22 Dec – EWM dividend of $0.142/shr
  • 23 Dec – IYW dividend of $0.052/shr
  • 29 Dec – EWZ dividend of $0.111/shr

For the year overall, there were 16 buy and sell transactions, compared with 13 in 2008 and 15 in 2007.

Performance Review: A strong quarter for IMSIP, as we were up 6%, narrowly beating out the S&P 500 (up 5%) and whupping the macro hedge funds (flat). For 2009 overall, we were +20%, which trailed the +23% performance of the S&P 500 but came in far ahead of the hedgies (+9%).

Tactically, with the market strong again this quarter and the dollar weak, we let our emerging market and commodity long positions ride. Every single position was up in the quarter, including our one remaining short position, the UltraShort Lehman 20+Year Treasury ETF (TBT, +13%), which goes up when the value of long-term treasuries decline, as they tend to do when long-term interest rates rise. Also boosted by the weaker dollar, our commodity ETFs all advanced in price during 4Q09: gold (GLD +9%), agriculture (DBA, +3%), and silver (SLV, +1%). The emerging market ETFs also did well: Brazil (EWZ, +14%), Malaysia (EWM, +6%), India (IFN, +5%), and China (FXI, +4%). Finally, our economic recovery hedge, the US Technology ETF (IYW) was up 11% for us; despite it’s name, the ETF has considerable offshore exposure as many of the US companies the fund invests in have material revenues and profits outside the USA.

Overall, we are now 48 points ahead of the market in terms of total return-on-investment: +27% for us and -21% for the S&P 500 in the three years since the inception of the IMSIP at the end of 2006. We are nine points ahead of our benchmark, the GAI Global Macro Hedge Fund Index, +27% to +18%. In terms of compounded annual growth rate, after three years IMSIP is +8%, the GAI hedgies are at +5%, and the S&P 500 is -8%.

Analysis: The naked emperor is still marching grandly down main street, and the populace appear to see nothing amiss—at least not the S&P 500, who applauded to the tune of +5% in 4Q09, as volatility edged down closer yet to normal. What’s not to like? The increase in unemployment has slowed if not ceased, corporate profits have been strong and sales may be edging up again with inventories extremely lean, inflation and interest rates (except for credit card debt) remain low, and the stock market has recovered 60% since the March 2009 lows.

As we have said before, we got into this situation by overspending, borrowing beyond our means, and speculating on bubble-valued assets. In point of fact, the emperor is a very sick man—you will recall that scary visit to the emergency room in late 2008—and marching him around in the dead of winter with no clothes on does not rate up there with the smartest of moves the USA has made.

Speaking of late 2008, nearly every time he makes a speech about the economy, Barack Obama makes it a point to blame the previous administration for the mess “we inherited.” That’s good politics 101, most definitely—and W was indeed a disaster—but blaming him for wrecking the economy is a dangerous exaggeration. The economy was already on the brink of breakdown due to decades of short-term thinking and bad management by both government (deficit spending, neglect of the dollar, refusal to deal with structural issues such as entitlements and energy, nurturing of bubbles) and business (failure of manufacturing industries to innovate and adapt, failure of finance industry to manage risk). The economy was already desperately ill; W took us on a walk in the freezing rain with no coat and so we ended up in the emergency room.

Unfortunately, the current administration actually do appear to believe their own rhetoric—they genuinely do blame W for making us sick in the first place, rather than just facilitating a breakdown. As a logical extension of that thinking, the Obama administration are—just as W did at the end, ironically—pumping us full of decongestants and painkillers (loose money and low interest rates) in a frantic attempt to get us to feel better. LOL they are even consulting the same “doctors” (Bernenke, Geithner, and a cabal of Goldman Sachs graduates). They are treating a serious disease as if it were a bad cold. Plus, they are so clueless that they are making things worse by committing us to huge new entitlements and subsidies (e.g., health care and so-called “green” energy). Like the freezing emperor’s storied new clothes, these programs sound great in theory but with no money to fund them, there’s no there there.

This is why it is dangerous to blame W. Unless and until we recognize that we have long-term structural issues and begin to seriously address them, whether or not inflating the dollar, cash-for-clunkers, artificially low interest rates et al lure the stock market higher and make us feel better, the underlying health of our economy will continue to deteriorate.

Until, that is, it totally collapses. Because if we keep treating symptoms and ignoring the disease, we ain’t seen nuthin yet.

And speaking of symptoms, another big blip on the radar screen as 2010 ensues is the quality of sovereign debt. Not just the USA, that is. The bankruptcy of Iceland’s banks in late 2008 and the narrowly averted collapses in Greece and Dubai in late 2009 have exacerbated concerns that defaults on national debt are increasingly likely. Check out this WSJ interview with Harvard economics professor Ken Rogoff about how sovereign defaults may play out, and also this list of sovereign debts ranked as a percentage of annual gross domestic product. And while we’re on the subject of Prof. Rogoff, here is an article about his study concluding that (surprize!) high levels of debt as a percentage of GDP are strongly associated with slow-to-no economic growth. Specifically, growth drops off a cliff at around a 60% ratio of debt-to-GDP—where the USA is now—and pretty much disappears entirely around an 80% ratio or higher.

When you look at Japan, for example—not that Japan is on anyone’s list of countries in imminent danger of default—and see public debt that exceeds GDP by 70%, you have to scratch your head and wonder how they get out of that box. Up to now, the Japanese have been able to finance their debt at very favorable terms internally—over 90% of it, in contrast to the USA (we depend much more on foreign borrowers, including Japan). But Japan has virtually no immigration, and a falling birthrate; consequently, their citizens are, on average, getting older. Retirees are more likely to be selling government bonds than buying them. And there are relatively fewer younger workers to take up the slack. Of course, once Japan is constrained to go to the world markets to refinance their debt, they will presumably have to pay higher (market) interest rates…and we already know that a debt-to-GDP percentage of 170% is not conducive to economic growth so raising revenue to make ends meet is unlikely to serve.

Conclusion: While we are confident the stroll of the naked emporer will not end well, we have no earthly idea how far he will get before [a] everyone realizes his new clothes are a sham or [b] he collapses from exposure…or even which is more likely to happen first. We can say that so long as this parade of unbridled optimism ensues, it is a greater risk to capital to fight it (go short) than to go with the flow.

Accordingly, as of 1 January, we continue to hold five long emerging market ETFs in the portfolio: China (FXI), India (IFN), Brasil (EWX), Malaysia (EWM), and US high tech (IYW which we consider an emerging market play as some two-thirds of the revenue of the companies comprising the ETF are ex-USA derived). Most of these would go—and be replaced by inverse index ETFs (that go up when the market goes down) if and when things get dicey again.

We also still have three long commodity plays which are hedges against the decline of the dollar: gold (GLD), silver (SLV), and agriculture (DBA)…these are more likely to stay in the portfolio, although one risk we are concerned about is a short term “flight-to-safety” dollar rally in the event of an exogenous macro event such as Spain defaulting on their debt or Israel attacking Iran’s nuclear facilities. Such a development could also adversely affect our short long-term Treasury bonds ETF (TBT), at least in the short run.

So while we have made no changes in the lineup recently, we are prepared to make significant changes any time now. Well, actually, any time, period.

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Motley Fool CAPS Roundtable: Inflation, Deflation, and Your Portfolio

Posted by intelledgement on Wed, 14 Oct 09

We got to participate in a discussion about this topic with another CAPS member and the results—posted on The Motley Fool website—were pretty interesting (in our unbiased opinion LOL).

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3Q09 Intelledgement Macro Strategy Investment Portfolio Report

Posted by intelledgement on Wed, 14 Oct 09

Summary of Intelledgement’s model macro strategy model investment portfolio performance as of 30 September 2009:

Position   Bought   Shares Paid Cost Now Value   Change   YTD     ROI     CAGR
FXI 03-Jan-07 243 37.15 9,035.45 40.92 10,379.12 6.35% 39.78% 14.87% 5.16%
GLD 03-Jan-07 142 63.21 8,983.82 98.85 14,036.70 8.41% 14.25% 56.24% 17.59%
IFN 03-Jan-07 196 45.90 9,004.40 29.05 8,561.28 -4.50% 32.65% -4.92% -1.82%
SLV 03-Jan-07 700 12.86 9,012.80 16.38 11,466.00 22.42% 46.25% 32.94% 10.89%
DBA 13-Mar-08 235 42.50 9,995.50 25.46 5,983.10 0.04% -2.75% -40.14% -28.19%
TBT 21-Jan-09 233 42.84 9,989.72 43.96 10,242.68 -13.67% 16.51% 2.53% 3.69%
EWM 21-Jul-09 1,062 9.41 10,001.42 10.14 10,768.68 n/a 40.83% 7.67% 46.26%
EWZ 3-Aug-09 165 60.39 9,972.35 67.67 11,165.55 n/a 93.40% 11.97% 103.75%
IYW 29-Sep-09 208 51.86 10,794.88 51.95 10,805.60 n/a 47.75% 0.10% 43.70%
cash 13,597.46 26,096.42
Overall 31-Dec-06 100,000.00 119,505.13 2.04% 13.05% 19.51% 6.70%
Macro HF 31-Dec-06 100,000.00 116,830.85 3.16% 8.91% 16.83% 5.82%
S&P 500 31-Dec-06 1,418.30 1,057.08 14.98% 17.03% -25.47% -10.14%

Position = security the portfolio owns
Bought = date position acquired
Shares = number of shares the portfolio owns
Paid = price per share when purchased
Cost = total paid (price per share multiplied by # shrs plus commission)
Now = price per share as of date of report
Value = what it is worth as of the date of report (price per share multiplied by # shrs plus value of dividends)
Change = on a percentage basis, change since last report (not applicable for positions new since last report)
YTD (Year-to-Date) = on a percentage basis, change since the previous year-end price
ROI (Return-on-Investment) = on a percentage basis, the performance of this security since purchase
CAGR (Compounded Annual Growth Rate) = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the Intelledgement Macro Strategy Investment Portfolio (IMSIP) is the Greenwich Alternative Investments Global Macro Hedge Fund Index, which historically (1988 to 2008 inclusively) provides a CAGR of around 14.3%. For comparison’s sake, we also show the S&P 500 index, which since January 1950 has produced a CAGR of around 7.2%. Note that for our portfolio’s positions, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: A moderately busy quarter, with three in and three out:

Performance Review: Another adequate quarter for us, as we were up 2%, and now +13% YTD. For the second consecutive quarter we were beaten out by both the macro hedgies—who were up 3%—and by the S&P 500—who recorded a second consecutive great +15% quarter. YTD, the S&P 500 is up 17%, we are up 13%, and the hedgies are up 9%.

Tactically, with the market moving inexorably northwards, we unloaded three of our last four short positions early this quarter—only our short on 20+ year treasury bonds remains—and added three long ETFs (Malaysia, Brasil, and high tech).

Overall, we are now 45 points ahead of the market in terms of total return-on-investment: +20% for us and -25% for the S&P 500 in the 33 months since the inception of the IMSIP at the end of 2006. In terms of compounded annual growth rate, we are edging out the GAI Global Macro Hedge Fund Index over the same time spans, +7% to +6%.

Analysis: The conventional wisdom now is that we suffered a sharp recession in 2007-09, but it is now over and the main question is how sharp and fast the recovery will be. Accordingly, the market in 3Q09 was less volatile and continued to move up dramatically. Two consecutive quarters of +15% ROI is pretty impressive; in an average year, the S&P 500 index is ±16%, so we have had two years worth of movement in the last six months. (Volatility has remained low because the pace of the increase has been steady and—from day-to-day—moderately paced, with no big corrections.)

As we have said before, we got into this situation by overspending, borrowing beyond our means, and speculating on bubble-valued assets. And the policies the Bush administration implemented—and the Obama administration has continued—of attempting to paper over the cracks in the system with bailouts of bad banks, bad real estate loans, bad credit default swaps, and bad industrial companies are neither the morally correct thing to do nor in our own long-term self interest. To the extent these actions succeed in postponing our day of reckoning, they ultimately succeed primarily in digging us into a deeper hole.

However, it is clear that the massive tidal wave of liquidity that the central banks—especially the Fed—have loosed on the world has succeeded in buying a significant stay of execution, albeit at the cost of alarmingly increasing the rate of decline in the value of the dollar. Accordingly, we are (as always) long commodities and also long emerging market plays, as we agree with the market perception that those economies will fare better than ours in the near- and medium-term future, although we still anticipate a significant economic disruption that will interrupt their growth…at which point we plan to have our capital elsewhere.

But for now, the sun is shining, so we are making hay. Being short here would, we expect, prove out to be the right stance in the medium term, but right now, we believe the opportunity for long gains outweighs the risk of not being able to shift gears quickly enough when the market turns.

Conclusion: We still believe things will almost certainly get worse…but given the prevalent bullish psychology, we don’t expect the market to perceive the serious problems we see for at least three-to-six months, and possibly up to 24 months with a lot of luck. (Whether it would be good luck or bad for the true nature of our problems not to become evident for another two years is left to the reader to consider as a useful thought exercise.) As of 1 October, we have five long emerging market ETFs in the portfolio: China (FXI), India (IFN), Brasil (EWX), Malaysia (EWM), and US high tech (IYW which we consider an emerging market play as some two-thirds of the revenue of the companies comprising the ETF are ex-USA derived). We have three long commodity plays which are hedges against the decline of the dollar: gold (GLD), silver (SLV), and agriculture (DBA). And we remain short long-term Treasury bonds ETF (TBT), as we expect 20+ year treasure bonds to decline in value as interest rates inevitably rise in order to entice buyers of the copious outpourings of US debt. We have enough cash to undertake two more positions and currently are considering shorting the dollar and a “buy-what-China-needs” play such as going long energy or Canada or Australia.

Finally, the spectre of systemic risk still lurks, and while we do not anticipate it will surface unbidden in the near future, a disruptive macro event (e.g., an Israeli attack on Iran’s nuclear facilities) could roil the waters at any time. Consequently we remain prepared to reconfigure the IMSIP to be more congruent with our medium-term macro analysis.

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BUY MSCI Malaysia Index (EWM…again)

Posted by intelledgement on Tue, 21 Jul 09

As those who were with us when we launched this portfolio back at the end of 2006 may recall, Malaysia is one of our favorite places to invest outside of the USA, and the iShares MSCI Malaysia Index ETF was one of our original 11 positions. But in March 2008, we liquidated the position at a profit (ROI of 29% and CAGR of 24%), as we moved to a more defensive position.

Now that we are lightening up on our shorts, we are looking to increase our long exposure and EWM looks good here, at virtually the same price we got it at back in January 2007. Meantime, conditions for business in Malaysia remain strong. Their per capita GDP is up from $14,200 in 2006 (the latest number we had in January 2007 was $12,900 in 2005) to $15,300 in 2008. For comparison’s sake, they are just behind Russia ($15,800) but well ahead of Brazil ($10,100), China ($6,000), and India ($2,800)…not to mention Mexico ($14,200), Turkey ($12,000), and Thailand ($8,500), to name a few. The BRIC countries are all growing faster, and GDP growth was down in 2008 to +5.1%, but that still looks good from here (the USA was +1.3% in 2008).

The iShares MSCI Malaysia Index exchange-traded fund (EWM) is heavily weighted towards financial services (31%) and industrials (20%), aptly reflecting the sweet spots of the Malaysian economy. There is also significant representation for consumer staples (15%), consumer discretionary (13%), utilities (13%), and telecom (7%), reflecting the high income levels of the populace. The P/E ratio is running around 16 and the yield is 3%. EWM is moderately traded (1.2MM shares/day).

Previous EWM-related posts:

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