Although long-term total returns are the goal of the Global Investment Strategist’s model Portfolio, the end of the year presents a timely opportunity to assess our Portfolio’s performance. Our Portfolio’s performance disappointed in 2011, however the long-term performance remains respectable. The Portfolio has performed solidly since its inception on Feb. 15, 2006, outgaining the Morgan Stanley Capital International All-Country World Index (MSCI World Index) and the S&P 500 over the same period.

Since the Portfolio’s inception on Feb. 15, 2006, through Dec. 31, 2011, the Global Investment Strategist’s Portfolio has returned 90 percent. The MSCI World Index is up 6.5 percent, and the S&P 500 has gained 10.6 percent over the same time period. All returns include dividends.

The Global Investment Strategist’s Portfolio has gained an annualized 10.5 percent since inception, compared with an annualized 1.08 percent gain for the MSCI World Index, and an annualized 1.7 percent gain for the S&P 500.

Nevertheless, the Global Investment Strategist’s Portfolio underperformed in 2011, losing 24.3 percent of its value. By contrast, the S&P 500 gained about 2 percent in 2011 and the MSCI World index lost 5 percent. All returns include dividends.

Please note that the Portfolio’s returns do not include returns generated by the recommendations in the Permanent Hedges category of the Global Investment Strategist’s Portfolio. The Portfolio is long-only and does not hold cash. These restrictions provide a clearer gauge of the Portfolio’s overall performance relative to its benchmark indexes–the major indexes are all long-only.

The Portfolio’s strategy is focused on profiting from vibrant, long-term investment themes by investing in fundamentally strong companies. We also balance the long-term risks and opportunities facing global markets with hedges recommended in our Permanent Hedges Portfolio.  

Source: Global Investment Strategist

The four permanent hedges–US Treasury bonds via iShares Barclays 20+ Year Treasury Bond  (NYSE: TLT), gold via SPDR Gold Trust (NYSE: GLD), the short on US consumers via Consumer Discretionary SPDR (NYSE: XLY), and the long recommendation on corporate credit via iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: LQD)–continue to perform respectably as a whole.

Since we added these recommendations to the Portfolio, the long Treasury pick has produced a 47 percent return. Gold has gained 204 percent since my recommendation; being long on US corporate credit has given us a 31.5 percent return; and shorting the American consumer has turned a loss of 10 percent. This last position is a leveraged hedge against any long-only, Asia-focused portfolio.

In 2011 the short on Consumer Discretionary SPDR produced a 6 percent loss; SPDR Gold Trust returned 9.6 percent; iShares Barclays 20+ Year Treasury Bond returned 34 percent; while iShares iBoxx $ Investment Grade Corporate Bond Fund returned 9.7 percent.

Top Gainers & Losers

Early in 2011we recommended that subscribers take profits off the table. Many of our Portfolio holdings had booked significant gains, and in retrospect our advice proved sound. Although we did not predict the magnitude of our Portfolio’s underperformance in 2011, our decision to take profits on these holdings helped cushion the blow for subscribers

The best way to take profits of the table is to sell enough stock so as to pocket all your gains while letting your initial investment run. This is a time-honored approach to securing returns while maintaining exposure to multiyear investment themes.

In 2011 the Global Investment Strategist Model Portfolio’s top gainers (including dividends) were:

Naga Corp (HK: 3918, OTC: NGCRF), up 31.3 percent.

Chunghwa Telecom (NYSE: CHT), up 14 percent.

China Petroleum & Chemical Corp (NYSE: SNP), up 13.8 percent.

Hengan International (HK: 1044, OTC: HEGIF), up 10.5 percent.

Fast Retailing (Japan: 9983, OTC: FRCOY) up 9.7 percent. Note that a strong yen last year led to a 16.5 percent gain in US dollar terms.  

This brings us to the laggards. I don’t suggest selling any of these stocks because these companies continue to offer value and growth potential. Their performance should improve in due time.

The Portfolio’s five biggest laggards in 2011 were:

Boshiwa International Holdings (HK: 1698), down 64 percent.

LG Display (NYSE: LPL), down 40.7 percent.

Dalian Port (HK: 2880), down 40 percent.

Renhe Commercial Holdings (Hong Kong: 1387, OTC: RNHEF), down 31 percent.

Mobile TeleSystems (NYSE: MBT), down 26 percent.

Our favorite overseas markets for 2012, in order of preference, are: China, South Korea, Russia, Indonesia, Taiwan, Hong Kong, Japan, India, The Philippines, Malaysia and Singapore.

Consequently, the five core stocks around which you should build your portfolio, in order of preference, are China Construction Bank (Hong Kong: 0939, OTC: CICHF), KB Financial Group (NYSE: KB), Gazprom (OTC: OGZPY), PT Telekomunikasi Indonesia (NYSE: TLK) and Taiwan Semiconductor Manufacturing Co (NYSE: TSM). Please visit the Portfolio page to see our complete stock rankings.