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A glance at my portfolio shows that 9% is held in British pounds. This is as much as I hold in Euro, an unusually large weighting. I also have an unusually large weighting in Danish and Swedish kroner.

You can see this breakdown in my last portfolio review at spottingtrends.com/international_investment_portfolio_6.htm

Why so much invested on that side of the Atlantic?

I believe in a weakening US dollar due to the huge US federal debt and enormous US current account deficit. Thus I want to invest out of the USA dollar and have about 30% of my portfolio in Western Europe. This is broken down at 9% in pounds, 9% in euro, 7% in Danish kroner, 3% in Danish kroner and 1% in Swedish kroner.

Why Europe? Though economic growth in Western Europe has ancient, well established, stable, capitalistic democracies. I invest there (primarily in bonds) for stability.

My PIEC Three Layer Investing plan includes these investments as the stable portion of my portfolio. See http://www.garyscott.com/philosophy/ for more on “PIEC Three layer Investing”.

Why so little in Euro. The euro is still an unproven currency and the two big euro supporters, France and Germany, are not in good fiscal shape.

Why so much in the kroner? Danish, Norwegian and Swedish economies are supported by good growth, fiscal prudence, low debt and strong current accounts.

Why so much the British pound? The British economy is not so hot nor is its debt and current account position.

I like the pound for three reasons. First, Britain is one of the largest European economies. This means that its currency can absorb more speculation without its central bank having to shut down the appreciation. Second, Britain historically is a safe place. About 25% of the world has a link to England. In times of turmoil investors from around the globe want to hold some sterling! Third, The English speak English. Again in times of turmoil most of the world looks to England or Spain because of their lingual connections.

So to me, British pound bonds are pretty good investments for us US dollar denominated investors. The world seems to agree as a BBC article entitled “Sterling heading for $2” says “The shock rise in UK interest rates last week has sent the pound jumping higher against the dollar and other currencies, a trend that may continue. Sterling rose more than two cents to $1.91 on Friday, a 15-month high. Analysts think the pound could near the two-dollar mark in coming months as investors pile into the currency. They expect the Bank of England to raise rates even further from their current 4.75%, presenting a good yield for those buying into the pound. Sterling has also risen against the euro and the yen, helped by the fact that UK interest rates are higher than those in Japan and the European Union.

You can read the entire article at http://news.bbc.co.uk/2/hi/business/5250250.stm

A $2 pound represents a rise versus the dollar this year of about 15% in eight months which shows that even the safest investments can often produce nice profits!

Double your profit potential with Multi-Currency investments. Learn how to leverage Asian investments in top value markets. See http://www.garyscott.com/catalog/bl/index.htm

However, though we still hold plenty of British bonds, we are still increasing our weighting in equities and cash as we reduce bond holdings. We are adding equities mainly via mutual funds. We have invested in Germany, Japan, India, China, Latin America, Eastern Europe and Turkey via Jyske Invest funds. You can learn more about Jyske Invest funds and British pound investments from Thomas Fischer at fischer@jyskebank.dk

This portfolio’s goal is to keep our second and third layer capital stable and protect this capital from inflation. The diversification enhances the protection yet also reduces the chances of the portfolio doing really well. On the other hand, it also keeps volatility low. After our last portfolio review, emerging markets and currencies had their second worst month in a decade, but the portfolio only dropped 4% that month. This was not as bad as it seemed since the portfolio had risen almost 2% the month before. Even after this really terrible month, the overall portfolio was still up over the last year. Now it has fully recovered and is rising into new territory once again.

Until next message, I hope you pound and compound your profits with international investments as well.

Gary

P.S. Join Merri, Thomas Fischer of Jyske Bank and me at our next International Business and Investing Made EZ course in North Carolina. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Meet Steve Marchant, our man in Ecuador, and learn about products to export. Go to garyscott.com/nccourse/index.htm

Join us for dinner at our home while you are at the September Course. Here I am arranging flowers in our dining room where we’ll enjoy the view as we dine on Merri’s excellent cooking!