PORTFOLIO TRACKER
By John O’Donoghue
Nearly, but not quite. By Monday 27th the S&P 500 stood at -27% for the month, but a last minute reprieve saw the month close at a more sedate but still extremely scary -16.75%. For the record, the worst month – for the S&P at least – was September 1931, where the fall was 29.95% (the Dow was -30.7%). October 2008 is in fact the 9th worst month recorded on the S&P, although as we lived through it, it did feel desperate. The effect on our Medium Risk Portfolio was, at -9.1%, dramatic but considerably better than most of the markets. Our holdings in Mining, Resources and Commodity funds all dropped by more than 30%, principally the result of massive liquidations by hedge funds, however the ETF (Exchange Traded Fund) holdings in Agriculture and Physical Gold fared much, much better. The only holding to improve was the Man Derivative with +11%, and the Brandeaux fund was unchanged.
What are we to make of the fact that this latest meltdown took place against a backdrop of frantic activity by politicians and Central Bank bureaucrats, bailing out Banks with billions, lending billions or millions to various institutions, guaranteeing deposits, facilitating Bank takeovers, and, it appears, on one occasion invoking anti-terrorist legislation to prevent the transfer of funds by a foreign bank? It doesn’t seem to be having a significant positive effect on the situation.
Perhaps it needs more time, or perhaps what it really needs is some draconian action to make the banks agree to ‘come clean’ on their sub-prime liabilities, not only mortgages, but credit card, car loan and student loan, and of course anything else. I’ve seen it suggested that this should happen out of the public spotlight so as to avoid panic, but if the investment banks were to deliver ‘Full Disclosure’ such that a truly clear picture emerges – over time, of course – and is then shared among the institutions. After that the interbank lending constipation resulting from the simple fact that none of them believe other banks’ liability disclosures, could be relieved and commercial lending to companies and individuals, the absence of which is the key initiator of the current recession, could resume. Let’s hope there is the courage to force this through, the alternative is an awful prospect.
Our ‘Medium – High Risk’ portfolio has, inevitably given its allocation to higher risk/ higher reward investments, experienced a hefty reduction in value and now stands at – 36% since inception in August 2007. At times like this I really wonder why we bother with Risk Factors, because when the markets turn like this all bets are off – even ‘low risk’ Bonds for instance: as I write the Investec Sterling Bond fund is – 8.3% year to date, this is a UK Gilts investment, supposedly very safe. The Sterling based Low-Risk Portfolio marches on doing what it’s supposed to do: the Capital is invested defensively, and while the Protected Asset TEP fund has had it’s first drop in price ever, exchange rate movements and gains in other assets have maintained the annual growth of the Portfolio at a rate of 9.9%. Very satisfactory in the circumstances, and it’s interesting that this portfolio has benefited from a currency boost from the Dollar.
Otherwise, a good time to invest in some very strong American stocks that are on sale at a very low price just now! That’s what I’m doing! That’s all for now! Happy investing …!!
John O’Donoghue is a Consultant Adviser with Caratfin Insurance Advisers Ltd. e-mail: [email protected] and [email protected] . Website: www.caratfin.com. Member of CIFSA. Caratfin Ltd. is regulated by the Superintendent of Insurance under License no. F.O.S.7. Tel: 22 464190.
