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Building a Portfolio

Discussion in 'Managed Funds & Index Funds' started by fourth, 26th Oct, 2007.

  1. fourth

    fourth Member

    Joined:
    23rd Oct, 2007
    Posts:
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    Location:
    Sydney, NSW
    I'm building my portfolio right now. Initially it'll have 140k and will use a large amount of gearing to achieve better returns. (My other fund are tied up in property). I find higher risks to be acceptable to me, though I'm not entirely sure at what point my acceptance with higher risks cross the line to stupidity. So, I'm looking for advice on what I'm planning:

    NOTE : I have only used managed funds though by superannuation, though on that pool of money I have achieved a 100% gain in just over a year without gearing(Including contributions, primarily invested in MBL Small Companies)

    The portfolio I'm planning is equal seed equity in to the following(Meaning the LVR will expand the amounts to different position sizes.

    Fidelity China LVR ~55
    Challenger China LVR ~55
    Sachs\JB were Resources LVR 75
    MBL Small companies. LVR 70

    According to my projections the seed capital and initial returns are by far the most important to the medium term profitability of the portfolio, so initially I was planning on a LVR -5% position

    Risks?
    -I have a 50% exposure to china, though, the majority of the profits after 3 years projection will come from there. So it's a risk I'm willing to take.
    -I also understand that there is a reasonable correlation between the resources fund and China.
    -I have an exposure to capital depreciation on the Chinese funds due to our increasing strength on the AUDUSD. I do follow forex and demo trade a lot so I have been pondering a currency hedge to neutralise this affect.
    -If the USD tanks, china's exports will become expensive and the US economy gets worse... unless Beijing buys more greenbacks. I don't know how long that will continue however.
    -I'm using high LVR's initially so there is an initial risk of tanking my account.

    I'm running this as a project (for a worthy real world goal). Based on projections I should reach my goal in 3 years (with plenty of buffer for poorer future returns).

    I have a vague idea of what plan B would be in the event of a market meltdown, though I'm thinking a 50% capital loss is possible before I get there. Plan C is to move entirely to technical forex trading in event of a bear market emerging or plan B not working.

    Is there much I could do to position myself better for a USD based meltdown, as that's the principal risk I'm concerned over? Any thoughts?
     
  2. Glebe

    Glebe Well-Known Member

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    Location:
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    I don't know those managed funds so I can't really comment I'm afraid. You're certainly betting alot on the China boom.

    Whilst I don't expect any problems anytime soon, it's worth noting their inflation rates and whether or not their currency will stay pegged to the USD.

    Anyway you seem on top of things so best of luck.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Location:
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    I'm not sure I follow your plan completely.

    What LVR will you be leveraging to for the funds ?

    How much of a drop in the market do you calculate you can withstand before being wiped out (or suffering heavy realised losses due to margin call) ?

    With such a high exposure to an (arguable) bubble in China - the bust could be quite nasty (if/when it comes).
     
  4. dkmc

    dkmc Well-Known Member

    Joined:
    24th Aug, 2005
    Posts:
    165
    Yes its not clear from your post how much - cash in and how much borrowing
     
  5. Property WA

    Property WA Active Member

    Joined:
    31st Jul, 2007
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    Location:
    Perth, WA
    To a degree, and just they way I'd look at that, the intended portfolio is more so at 90-100% exposure to China.

    Resources and Smaller Companies funds may not be invested directly in China, but if growth starts to derail it'd be hard to see how resources and smaller companies will not be effected.

    Resource stocks - because they take most of it. Smaller companies - because in a volatile/downward market they generally get hit harder than say the top 200.
     
  6. fourth

    fourth Member

    Joined:
    23rd Oct, 2007
    Posts:
    9
    Location:
    Sydney, NSW
    140k Seed Equity. Leverage will be initially 5% below maximum LVR listed above. I'll admit that initially that overly agressive, but according to the research I have done China has a low probability of a meltdown before the Olympics (The government doesn't want anything to spoil the event, so is holding off policy changes). China is also loosely correlate with the US in terms of Subprime issues from what I have read. I noticed that the Hang Seng was not overly affected in August (Unless I read that correctly).

    China is only beginning a bubble from what I see. They have a lot of savings to burn though and P\E's are generally low of the major companies in the funds I'm looking at, so they should bloat siugnificantly.

    In addition, IMHO, the people there are immature investors and will in general not see the crash coming, so this will help extend it longer. Remember we are not yet seeing the crazy P\E's of the dot com bubble.

    One other thing I see mentioned is that IF there is a premature early sell off foreign money will likely step in and add liquidity by snapping up the bargains, so a fast rebound is very possible.

    This is a tough question, because as the equity is building so fast that I'm hoping the takings will be my buffer. If It crashes the moment I step in... I'm screwed... thats why I'm putting my money on the olympics. I'm even thinking about reducing my china position size at that point.

    I was expecting that, however, as a holder of MBL Small caps right now (In Super) I watched the unit price like a hawk during the August correction and saw a net drop in my account of 4%. I also hold MBL shares and saw a staggering drawdown there. MBL Small Caps recovered within weeks from what I saw.