Macroeconomic Portfolio
Update Dec 15, 2008
Over the last quarter, this portfolio has lost 18.5%. This is primarily due to a drop in the two commodity ETNs, which each dropped about 40%. We did not anticipate the drop in oil demand due to the worldwide recession, especially in China.
Also, the value of Powershares DB US Dollar Index Bearish (UDN) dropped by about 7.6%. With this investment, we didn't realize that the global recession would make americans pull their money out of foreign markets. That increased the demand for dollars, making the dollar go up. We are still quite bearish on the dollar.
The new portfolio
| % Assets | Instrument |
|---|---|
| 30 | ProShares UltraShrt Lehman 7-10 Yr(ETF) (PST) |
| 20 | iShares iBoxx $ Invest Grade Corp Bond (LQD) |
| 20 | PowerShares DB US Dollar Index Bearish (UDN) |
| 30 | Cash |
The largest component of our new portfolio is the ProShares Ultrashort Lehman 7-10 Yr Treasury ETF (PST). With some treasury yields near zero, the market looks like a bubble ready to pop.
We are buying the iShares iBoxx $ Invest Grade Corp Bond Fund (LQD) because we expect the enormous yield spread between corporate and government bonds to diminish.
We are staying bearish on the dollar with the PowerShares DB US Dollar Index Bearish (UDN) because of a reversal in demand for dollars.
- Stefan Hollos and Richard HollosOriginal post of Sept 24, 2008
This is a portfolio with a time horizon of at least 1 year. It is based on some general macroeconomic trends that we see happening over the next few years:
- The dollar will continue its devaluation and its days as the world's reserve currency are probably numbered.
- Commodity prices will continue to rise due to the simple fact that worldwide demand will continue to outpace supplies.
| % Assets | Instrument |
|---|---|
| 20 | PowerShares DB Commodity Long ETN (DPU) |
| 20 | ELEMENTS Rogers Intl Commodity ETN (RJI) |
| 10 | PowerShares DB US Dollar Index Bearish (UDN) |
| 10 | Consumer Staples Select Sector SPDR (XLP) |
| 40 | Cash |
Note that 40% of the assets are kept as cash. We may use some of that later to add to the portfolio. Here is a description of each investment:
-
PowerShares DB Commodity Long ETN (DPU)
This is an exchange traded note (ETN) that tracks the Deutsche Bank commodity index. It goes up when the price of commodities goes up, and down when commodities go down. It's based on the following commodities and their given weights: Aluminum 10.48%, Corn 12.55%, Gold 9.47%, Heating oil 22.06%, Light crude 35.36%, Wheat 10.08%. -
ELEMENTS Rogers Intl Commodity ETN (RJI)
This is another commodity ETN that tracks the Rogers International Commodity Index Total Return. Its weights for commodity types are: Energy 44%, Agriculture 35%, Metals (industrial and precious) 21%. -
PowerShares DB US Dollar Index Bearish (UDN)
This is an exchange traded fund (ETF) that shorts the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc. It goes up when the US Dollar goes down relative to those currencies. -
Consumer Staples Select Sector SPDR (XLP)
This is an ETF that invests in the stock of companies related to consumer products. Its top 10 investments are: Proctor & Gamble 15.5%, Wal-Mart 10.89%, Philip Morris International 8.67%, CVS Caremark 5.28%, Coca-Cola 5.07%, Pepsi 4.22%, Anheuser-Busch 3.97%, Kraft 3.59%, Altria Group 3.58%, Colgate-Palmolive 3.19%.
Every quarter, counting from today (Sept 24, 08), we'll report how this portfolio has performed.
- Stefan Hollos and Richard Hollos