Still Solid
FALLS CHURCH, Va.–The Silk Portfolio continues to outperform.
The performance stats below refer to the Long-Term Holdings Portfolio. I used this portfolio in order to fairly compare Silk’s performance against benchmarks; all major market indexes are also long-only.
Though quarterly results aren’t my main concern, the end of the quarter offers an opportunity to assess performance since inception. I also publish yearly returns at the appropriate time.
Since its inception 15 February 2006 through the end of the third quarter of 2007, the Portfolio is up 58.01 percent, while my benchmark–the Morgan Stanley Capital International All Country World Index Total Return (MSCI World Index), which includes gross dividends–is up 33.33 percent. The S&P 500 is up 21.67 percent, including dividends, during the same time frame.
Source: Bloomberg, Silk
Two of the three permanent hedges–US Treasurys via the iShares Lehman 7-10 Year Treasury Bond Fund (NYSE: IEF), recommended in early March 2006, and gold bullion, recommended later that same month, also made respectable contributions. The former was up 9.57 percent, while the latter was up 28.8 percent.
I initiated the bond hedge at a time when many pundits were busily justifying their views as to why the 10-year US Treasury yield was about to rise to 6 percent and beyond.
But bonds didn’t collapse (see the chart of 10-year Treasury yields below), which came as no surprise to Silk readers. Furthermore, bonds proved a good hedge instrument, holding their own during uncertainty this past year. That said, the long-term downtrend in the 10-year yield did break to the upside during the summer, but the move proved insubstantial and temporary.
US Treasurys remain a good hedge to long-only portfolios.
Source: Bloomberg
As for gold, here’s why I’m such a long-term bull on the Midas metal.
The majority of investors remain uncertain about the final outcome of the Federal Reserve’s moves to cut rates and the slowdown of the US economy this year. The debate between deflationists and inflationists remains animated.
I anticipate an eventual deflationary outcome (i.e., a deleveraging of the consumer). And the only hedge able to cover either outcome is gold.
Gold has been the object of ardor and the target of scorn throughout the centuries but has never been refused as a means of payment. The reason is that gold has no substitutes.
And given the demand for gold we’ve seen during the past three years (from central bank buying to new gold exchanges and liberalization of trade around the world), gold has become the world’s fourth currency. In today’s world of massive deficit spending and financial imbalances, expect demand for gold to increase.
I first recommended gold as a hedge three years ago (while overseeing a portfolio for another advisory), and the metal remains the ultimate bulwark. Gold is in a secular bull market that commenced in 1999 and should rise much higher, easily surpassing previous highs by the end of the decade. I strongly recommend gold as a hedge position for long-only portfolios.
I recommended a third permanent hedge position–shorting Consumer Discretionary SPDR (AMEX: XLY)–toward the end of 2006. To date the position has contributed 4 percent to my hedging strategy.
Pay attention to the hedges and see them as what they are: protection for the rough patches. Protecting your portfolio is always a good idea.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio for details), in order (for both countries and sectors):
The performance stats below refer to the Long-Term Holdings Portfolio. I used this portfolio in order to fairly compare Silk’s performance against benchmarks; all major market indexes are also long-only.
Though quarterly results aren’t my main concern, the end of the quarter offers an opportunity to assess performance since inception. I also publish yearly returns at the appropriate time.
Since its inception 15 February 2006 through the end of the third quarter of 2007, the Portfolio is up 58.01 percent, while my benchmark–the Morgan Stanley Capital International All Country World Index Total Return (MSCI World Index), which includes gross dividends–is up 33.33 percent. The S&P 500 is up 21.67 percent, including dividends, during the same time frame.
Source: Bloomberg, Silk
Two of the three permanent hedges–US Treasurys via the iShares Lehman 7-10 Year Treasury Bond Fund (NYSE: IEF), recommended in early March 2006, and gold bullion, recommended later that same month, also made respectable contributions. The former was up 9.57 percent, while the latter was up 28.8 percent.
I initiated the bond hedge at a time when many pundits were busily justifying their views as to why the 10-year US Treasury yield was about to rise to 6 percent and beyond.
But bonds didn’t collapse (see the chart of 10-year Treasury yields below), which came as no surprise to Silk readers. Furthermore, bonds proved a good hedge instrument, holding their own during uncertainty this past year. That said, the long-term downtrend in the 10-year yield did break to the upside during the summer, but the move proved insubstantial and temporary.
US Treasurys remain a good hedge to long-only portfolios.
Source: Bloomberg
As for gold, here’s why I’m such a long-term bull on the Midas metal.
The majority of investors remain uncertain about the final outcome of the Federal Reserve’s moves to cut rates and the slowdown of the US economy this year. The debate between deflationists and inflationists remains animated.
I anticipate an eventual deflationary outcome (i.e., a deleveraging of the consumer). And the only hedge able to cover either outcome is gold.
Gold has been the object of ardor and the target of scorn throughout the centuries but has never been refused as a means of payment. The reason is that gold has no substitutes.
And given the demand for gold we’ve seen during the past three years (from central bank buying to new gold exchanges and liberalization of trade around the world), gold has become the world’s fourth currency. In today’s world of massive deficit spending and financial imbalances, expect demand for gold to increase.
I first recommended gold as a hedge three years ago (while overseeing a portfolio for another advisory), and the metal remains the ultimate bulwark. Gold is in a secular bull market that commenced in 1999 and should rise much higher, easily surpassing previous highs by the end of the decade. I strongly recommend gold as a hedge position for long-only portfolios.
I recommended a third permanent hedge position–shorting Consumer Discretionary SPDR (AMEX: XLY)–toward the end of 2006. To date the position has contributed 4 percent to my hedging strategy.
Pay attention to the hedges and see them as what they are: protection for the rough patches. Protecting your portfolio is always a good idea.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio for details), in order (for both countries and sectors):
- South Korea (electric power, banking)
- Hong Kong (real estate, publishing, infrastructure)
- Malaysia (ETFs)
- India (pharmaceuticals)
- Russia (telecommunications, energy)
- Taiwan (technology, telecommunications)
- Europe (oil, pharmaceuticals, industrials, communications equipment)
- Singapore (telecommunications, banking, industrial)
- Japan (banking, industrials)
- China (consumer, coal, power, oil, water)
- Macau