MCLEAN, Va.–The SRI Portfolio continues to outperform.

New readers, please note that this is a long-only portfolio. I imposed this restriction in order to fairly compare performance against benchmarks, and all major market indexes are also long-only.

Though quarterly results aren’t my main concern, the end of the period offers an opportunity to assess performance since inception. I also plan to publish yearly returns at the appropriate time.

Since its inception 15 February 2006 through the end of the third quarter, the SRI Portfolio is up 8.4 percent, while our benchmark–the Morgan Stanley Capital International All Country World Index Total Return (MSCI World Index), which includes gross dividends—is up 7.7 percent. The S&P 500 is up 5.9 percent, including dividends, during the same time frame.


Source: Bloomberg, SRI

As noted last week, I’m now including an Alternative Holdings Portfolio to allow readers to track permanent hedges and shorter-term recommendations. It will also include companies I’ve recommended but haven’t added to the SRI Portfolio.

The two permanent hedges remain US Treasury bonds, recommended in early March (see SRI, 8 March 2006, Hedge Your Bets), and gold, recommended in late March (see SRI, 29 March 2006, Right You Are…). The former is up 4 percent, while the latter is flat.

The rest of the recommendations in the Alternative Holdings Portfolio have done fairly well. Moscow-based Vimpel Communications leads the pack with a 35 percent return, while the Russian oil giant Lukoil, down 10 percent, is the laggard.

Last week I wrote, “The Taiwan-based technology stocks I recommended (again, as a side bet to your main holdings) in August have performed, in the aggregate, much better than the S&P 500. I continue to recommend exposure to them, as there’s a strong probability they have another 10 percent to the upside.”

Although October can be tough for Asian stocks, the last three months of the year make up usually one of the best quarters. Some exposure to these companies, therefore, isn’t a bad idea. That said, Hon Hai Precision (Taiwan: 2317) is up 16 percent since I recommended it at the end of August; non-US based readers should consider taking profits. I’m removing the stock from the Alternative Holdings Portfolio.

I’m also taking out United Microelectronics, which is down 1 percent since my recommendation. You and your money would be better served by the two remaining Taiwan-based tech recommendations, AU Optronics, which is down 5.5 percent from entry, and Taiwan Semiconductor, which is up 4 percent.

The remaining Alternative Holdings recommendations stand.

I’ve favored Singapore since early this year. As I noted at the time (see SRI, 22 February 2006, Still Looking Good):

On the economic side, a property recovery is starting, which will be extremely beneficial to the local economy. Furthermore, Singapore declared that investors putting SD5 million (USD3 million) or more into the country’s financial instruments can become a permanent resident–up to SGD2 million (USD1.2 million) of that amount can be used to buy property. The decision illustrates Singapore’s efforts to increase its appeal as a desirable destination for entertainment and high living standards, thus attracting the affluent from across Asia who want a personal getaway (e.g., Japanese).

Follwing up in May (see SRI, 3 May 2006, Still Going), I pointed out that

Singapore has performed well as investors are more and more impressed with its success in creating new growth sectors while strengthening its financial services sector. Singaporean banks remain the main way to play the revitalization of Singapore’s economy, and investors should also take advantage and own one of Singapore’s solid dividend-yielding stocks. The SRI Portfolio includes recommendations for both strategies

The operating performance of banks as a group is getting better as credit demand gradually rises in Singapore. Loan growth is steadily rising, and the latest statistics are very encouraging–loans expanded by 7.1 percent year-over-year as of the end of August, up from 6.1 percent in July (see the chart below). Consequently, SRI Portfolio holding United Overseas Bank remains a strong buy.


Source: Bloomberg

The property story I mentioned above is also getting better by the day. Singapore has been on the receiving end of strong foreign direct investment (FDI) dollars, which at USD12.6 billion in the first half of 2006 is almost twice as much as the FDI that came in the mid-1990s and early 2000.

A lot of this money is finding its way to real estate–residences, hotels, malls and offices. The high-end residential area is particularly hot with foreign investors, as they currently account for 60 percent of demand.

This comes as no surprise; in fact, this part of the market should do well in the future, too, as Singapore implements its program for attracting foreign talent to its growing money management industry. This is the main reason prime office rents are rising rapidly in Singapore.


Source: Bloomberg

As the following chart shows, the amount of money under management in Singapore has been growing steadily. It’s expected to grow dramatically in the future as Singapore continues to project itself as a viable and responsible alternative to other banking centers. The interesting statistic, though, is that funds sourced from the Middle East and South Asia grew 30 percent and 56 percent, respectively, year-over-year.


Source: Monetary Authority of Singapore

Because the government is repositioning Singapore as a “global city” where one can live, work or just have a good time, a lot of rich people are being persuaded by their money managers to buy luxury property in the country. As a result, new luxury buildings are popping up, and the price per square foot has reached, in some cases, as high as USD1,700.

In an effort to enhance the country’s appeal to foreigners, Singapore recently awarded a big casino development project, the Marina Bay Integrated Resort, to Las Vegas Sands Corp.

I’m adding two Singapore property plays to the Portfolios. One, Keppel Corp (OTC: KPELY) is now a member of the SRI Portfolio. The other, City Developments (OTC: CDEVY), is an Alternative Holding. Also making its debut in the SRI Portfolio is Hong-Kong real estate developer Cheung Kong (OTC: CHEUY). I’ll have more on these companies next week.

Note that although these companies do stand to benefit from regional economic development, they’re a little riskier. But if the market performs well into the end of 2006–particularly November onward–then tactically, the results should be beneficial. The longer-term story seems solid.

Finally, a word on Thailand. A couple weeks ago, I offered my assessment on the military coup that took place in Bangkok (see SRI, 20 September 2006, A Public Holiday). I noted then, “Those who purchased shares of Bangkok Bank should stay with the investment. Those who haven’t done so should start accumulating shares (always in the context of a diversified portfolio) once the market opens in Thailand and the first shock has been digested.”

This assessment is still valid, although recent developments–mainly the appointment of a former army commander as the interim prime minister–aren’t very encouraging. I’m monitoring the situation and will provide a more detailed update soon.