There
is an old saying about investors. "Sometimes Bears win. Other times Bulls win.
Hogs always get slaughtered." However there is a way
to enjoy excellent profits as a hedgehog. This message looks
at a MultiCurrency Sandwich portfolio that hedges the value
of US dollar and suits those who believe that the greenback
may maintain its value versus other currencies, but want
protection in case it does not.
US Dollar Hedge MultiCurrency Sandwich
Starting Date 10/21/05
$100,000 Invested & $200,000 Borrowed
$Amount Currency Investment Price Yield Amount % of Invested
% Value Portfolio
$12,000 BRL 12.5% Brazil Rep 05-01-16 94.60 11.82 12,000
4%
$30,000 AUD 5.5% Landwirt Rentenbank 99.79 5.48 30,000 10%
16-04-2007
$30,000 GBP 7.125% British Tel 07-12-2006 102.79 7.32 30,000 10%
$30,000 HUF 6.25% Hungary Gvt. 12-06-07 99.35 6.20 30,000 10%
$30,000 ISK 0% Iceland 09-02-2007 89.23 11.20 30,000 10%
$30,000 MXN 8% Mexican Fix Bonos 98.73 7.89 30,000 10%
24-12-08
$30,000 NZD 6.5% ABN Amro Bnk 08-02-2008 99.54 6.47 30,000 10%
$12,000 TRY 14.5% E.I.B. 21-02-2007 102.10 14.34 12,000 4%
$15,000 USD 7.2% Ford-Global 15-06-2007 98.64 7.10 30,000 5%
$15,000 USD 3.875% Deutsche Telekom 97.75 3.78 15,000 5%
22.07.08
$30,000 EUR JI High Yield Corporate Bond Fnd 110.70 5.00 30,000 10%
$36,000 US$ JI Emerging Markets Bond Fnd 242.10 7.00 36,000 12%
Total Invested $300,000
Estimated Gross Income $ 21,800
Loans in UD$ Equivilent
20.00% JPY 1.63% 40,000
80.00% CHF 2.38% 160,000
Total Loan $200,000
Total Estimated Loan Cost $4,460
Net Amount Invested $100,000
Estimated Income After Loan Cost $17,340
You can see subtle changes in this portfolio if you compare
it to the US dollar long portfolio we examined the day before.
Less belief in the greenback (than in the dollar long portfolio)
means that weightings in the British pound, Hungarian florin,
and euro are increased. Weightings in the dollar linked Mexican
peso and US dollar denominated bonds are reduced.
This portfolio has a slightly reduced potential but is still
projected to return 17.34% per annum on the initial $100,000
invested.
The profit projection is made before calculating fees. Plus
there are risks. Study Lesson 14 of International Currencies
Made EZ to understand the risks of the multicurrency sandwich.
In addition to enhanced profit potential investors who hold
this type of portfolio gain security and stability by having
a diversified basked of currencies.
There are those who believe in a steady US dollar. If their
beliefs are correct, they can earn 17.34% with this hedge
and not be a hog. Perhaps they'll even gain some extra forex
profits.
Until next message, may all your investments be good!
Gary
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