COMMENT:Â By John O’Donoghue, Consultant Adviser, Caratfin Ltd.
I find it very strange indeed that at a time when bad news continues to arrive by the bucketful – among the latest pieces of news I’ve seen are comments that major American Institutions are going to have to write down $20 billion (and growing) because of sub-prime, and that UBS has negative revenues of $3.4 billion in its first quarterly loss for 9 years – our medium risk portfolio has gained nearly $27,500 over the month of September. That’s the second largest dollar rise since inception just over 4 years ago, and +5.5% for the month. Growth since we started in September 2003 now stands at 111%, +$278,000 on a start of $250,000.
As well as being bemused I’m also delighted, of course. In my last article I had, in a way, expressed some surprise that the damage had been pretty light in the circumstances, and showed my concern that we were “possibly experiencing the lull before the storm” that would be caused by a lack of information about the scale of the problem and the huge sums of money tied up in Adjustable Rate Mortgages that are due to reset at a (presumably) much higher rate of interest between now and the end of 2008. The storm has not – yet – broken, and while I remain convinced it will not be plain sailing up to the end of the year, the first month of Year 5 for this portfolio have in fact sailed us off to an excellent start, with a very nice cushion in the event of problems, or springboard if my concerns are unfounded! And do I have a theory as to why the crisis has – so far – been broadly restricted to the Financial Services sector (and within that tightly focused on Banks, the Mortgage industry and the Ratings companies)? Yes, two actually, and I can’t decide which is nearer the truth: the ‘half full’ one is that a healthy sense of perspective is being applied by institutions and investors, and common sense prevails, recognising that in sector terms the fundamentals are fine in most. The ‘half empty’ is that the potential implications of sub-prime and the liquidity crisis globally, compounded by short-termist Central Banker reaction, are of a scale that has not been recognised as yet, or, more likely, will evolve in an unanticipated direction. Hopefully not, but a diversified portfolio and reasonably quick reactions (dealing in funds is not like shares, we don’t get on the phone and yell “Sell, Sell!”, instead we e-mail a form and the sale/purchase happens when the next trade point, usually the next day but not always, is scheduled) our ‘cushion’ will help out if it turns nasty.
We left the new medium – high risk portfolio last month with a theoretical sum invested of €100,000 and a first week performance of just over €4,000, or +4.1%. 25% of the initial sum remained in cash and the rest was used to buy a mix of commodities, utilities and resources plus a little European property in a fund that is able to ‘short sell’ and hasn’t fared anywhere near as poorly recently as its ‘long only’ cousins. I was confident this allocation would not be significantly affected by the sub-prime crisis in the
Not forgetting the low – risk portfolio, growth now stands at 26.4% since August 2004, an average of 8.7% p.a., within target parameters. It’s doing what it’s supposed to do.
Caratfin Ltd. is authorised by the Central Bank of
