By John O’Donoghue
Consultant Adviser, Caratfin Ltd.
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October saw another bumper month for the medium risk portfolio, with a further gain of over $20,000 booked. Our total value now stands at $547,831, with growth of nearly $298,000, an increase of 119% over 50 months. Growth in the first two months of year 5 for the portfolio is +8.7%, and I suspect we’re going to need all of it in the coming months. October also brought a steady flow of increasingly bad news, with Merrill re-evaluating their losses and coming up with an increase in the write down figure, nearly doubling it to reach $8.4 billion. The departure of Merrill’s boss followed shortly after, and was followed today, as I write on Monday, by Mr. Prince of CitiBank, who are now estimating their write-down from subprime and associated problems as being between 8 and 11 Billion Dollars! Such a wide variance means, of course, that they actually haven’t got a clue what the damage is, they just know it’s very, very large.
In other news I see that the Hang Seng is -5% today, its third sizeable drop in a row, the FTSE is -1.3%, but in the States early trading hasn’t brought disastrous news – the S&P is down half a percent.
I believe that we face significant turbulence in the near future, and have been taking measures that I hope will defend investments as much as is possible from what I expect is coming our way. These measures include pulling out completely from US and UK Equities, coming out of selected mainstream European Equities (I believe peripheral funds, eg the Adriatic Balkan one, or Eastern Europe, will be less affected by a broad downturn), and switching investment focus to the Far East, BRICs, Resources, Commodities, Utilities and Cash. On the 20th October we sold the New Star European Growth, Hambro’s UK Growth, the Fidelity Italy and two WIOF Funds, the Baltic Opportunities and Central Asian Opportunities, which has been very disappointing. This freed up over $91,000 (with a profit of over $32,000), and provided nearly $27,000 for the Carmignac Commodities € fund (a 5% share of current total value), and $13,625 (2.5%) each to the Baring Eastern Europe $ fund, the Allianz RCM BRIC Stars A £, and Gartmore’s £ Pacific Opportunities fund. All four have performed very strongly this year so far, and – more importantly – over the last two months. As you can see on the attached spreadsheet, all four are in positive territory, with the Carmignac and Baring funds having a superb start. These changes have moved the risk profile to a higher level, which is partially moderated by the retention of a cash balance currently of 4% of total value. We haven’t deliberately held cash since 2004, and my inclination is to increase the sum!
The portfolio has moved – not surprisingly – closer to the Medium – High portfolio in structure, and they both feature a number of the funds in common. I have made no changes to the Medium – High risk investment, given that it is just over two months old it already reflects my thinking about the markets and how to position ourselves. It has gained 12.8% in 9 weeks, and added €3,500-odd in October. Our third portfolio, the low-risk one, encountered a problem during the month with a significant drop in the price of the Premier Diversified Property fund. This resulted from one of the spin-off effects of the sub-prime issue, in that Merrill is not the only company re-evaluating its assets, the Premier fund is one of a number of property and property-linked funds to have ‘taken a hit’ from such a revaluation. The damage to the portfolio hasn’t been too bad, and the annualised growth is 8%, well within target. I have, however, encashed the holding in full and left the proceeds in cash for the time being. Why? Well, is this the last revaluation, or the first of many? No, I don’t know either!
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Caratfin Ltd. is authorised by the Central Bank of
