On Target Newsletter

In this issue:

  • Bursting bubbles
  • China v America
  • Income from a portfolio
  • Second citizenships and passports
  • Investing in uranium
  • End to secrecy

A 6-Step Portfolio Review

By Peggy and Chad Creveling

Regular portfolio reviews are critical to investment success, especially after big moves in the equity, fixed income and currency markets that can occur from time to time. Unfortunately, many expats never get around to reviewing their portfolios or if they do, don’t approach the process in an organized way that will get results over time. 

This is not about trying to time the markets or picking the next hot stock or asset class. Instead, the purpose of the portfolio check is primarily to keep things on track, identify problems early, and make sure your overall investment plan remains linked to your financial goals. Ideally, you will have already devised a financial plan, identified specific, quantifiable goals, and have a clear idea of how your investment portfolio will support those goals.

How often should you review your portfolio? Certainly, there is no need to check every day, every week, or even every month. Probably the best schedule to stick to is quarterly or semi-annually. That’s often enough to ensure things remain on track without becoming an undue burden.

Follow the steps below when conducting your review. They’ll keep you focused on the aspects of the portfolio that are most important to manage and help you save time with a focused, systematic approach.

  • Make sure your asset allocation is on track: This is one of the most important aspects to review as the split between cash, fixed income and equity-type assets will largely determine the long-run returns you can expect to achieve, the volatility you will experience along the way, and how likely you are to achieve your financial goals.

The weightings allocated to these broad asset classes should have been established in your financial plan and, if you work with an investment advisor, detailed in an investment policy statement.

Check that your current weightings are in line with your plan. There is no need to make changes for few percentage point deviations and incur excessive trading fees and/or trigger taxable gains. If your current weightings are out of line by more than 5% or so, however, it’s probably time to make some adjustments. If you’re

making adjustments in a taxable account, try to rebalance with new savings, dividends or interest payments to avoid triggering capital gains tax.

Along with reviewing the broad split between cash, fixed income and equity, take a look at the weightings for each asset class in your portfolio. Not all asset classes have the same volatility or risk/return profile. For example, the expected return for emerging market stocks may not be much different than developed market stocks, but the volatility is nearly twice as high.

While adding uncorrelated asset classes to a diversified portfolio can improve its risk-reward profile, you still want to ensure that some of the more volatile asset classes in your portfolio, such as emerging markets and small-cap stocks, don’t creep up too high.  Overall, you want to avoid increasing the volatility and risk in the portfolio without much of a pickup in the portfolio’s expected returns.


  • Review your currency exposure:

This is especially important for many expats who typically maintain roots in and exposure to several countries.

By currency exposure, we mean the portfolio’s underlying economic exposure, not just the cash position or the reporting currency of the portfolio. For example, if you buy Australian denominated bonds in a portfolio measured/tracked in USD, the reporting currency is USD, but the true currency exposure that will affect the investment returns is AUD.

Likewise, if you buy large-cap European stocks, you get the equity return on the stocks, but you also have exposure to the EUR. It doesn’t matter if the portfolio that holds these stocks is reported/measured in USD, EUR, or THB.

To avoid a currency mismatch, it’s important to try to identify which financial goals or future liabilities the portfolio is intended to fund. 

The portfolio currency tilt along with the asset mix can also be identified in your financial plan and, if you’re working with an investment advisor, it will also be detailed in your investment policy statement. Check that the currency tilt remains in line with the currency of the future liabilities that your portfolio is intended to fund. This is especially important for the fixed income portion of the portfolio, where currency volatility can easily overwhelm returns.

  • Check your portfolio’s duration or interest rate sensitivity:

With interest rates at historic lows in many developed market countries, they only have one direction to go. And, since bond prices fall as interest rates rise, you’ll want to understand your portfolio’s sensitivity to rising interest rates.

Interest rate sensitivity is typically measured by a concept called duration, which is measured in years. For example, if your portfolio has an average duration of 4.5 years, you can expect that the value of the fixed income portion of your portfolio will fall by roughly 4.5% for every 1% increase in interest rates.  The longer the maturity of your fixed income, the greater the duration and the more sensitive it will be to interest rate movements.

For those who have the time and inclination, there are publicly available sources you can access to research the duration of your portfolio positions. For others, you can simply avoid fixed income maturities of greater than seven years. To reduce the impact of rising interest rates, consider limiting your fixed income allocation to cash, short-term fixed income (1-3 years), and intermediate fixed income (3-7 years).  

  • Review portfolio fund fees:

Examine the fees you are paying for each fund or position in your portfolio and calculate the overall fee for your portfolio. In general, you should not be paying more than 1% on the entire portfolio, and if you’re really efficient, you can get the fees down to 0.25% – 0.35%.

Controlling fund fees is key to attaining reasonable long-run investment returns. You can see why when you consider that the long-run real return (excluding inflation) for most portfolios will only average 3% – 5%.

If your portfolio has averaged 8% per year over time, while inflation has averaged 4%, the real growth (or growth in purchasing power) of the portfolio is only 4%.

Since the portfolio has to grow 4% just to keep up with inflation, any fund fees come out of the real return to the portfolio. A 1% fee is a 25% tax on the 4% real return of the portfolio and will significantly lower long-term growth and portfolio value. Fees of 2%-5% or more that are typical in the offshore markets can eat up anywhere from 50% to over 100% of your real return.

The quickest and easiest way to boost portfolio returns for no additional risk is to cut unnecessary fees. If you’re paying more than 1% for an investment fund, make sure you have a good reason.

  • Check that you are maximizing tax-advantaged structures:

If you are subject to tax on your portfolio and you have access to tax-advantaged structures, make sure you’re using them wisely.

This asset location decision is highly dependent on the unique situation of the investor, so it is difficult to apply any hard and fast rules of thumb. You can consider, though, putting high-yielding investments or tactical positions in tax-deferred or tax-exempt vehicles.

Studies have shown that the judicious use of tax-advantaged structures can add as much as 1% to an investor’s annual after-tax return. This can be a complicated area, so you may want to work with your financial or tax advisor to ensure you’re maximizing your situation.

  • Track your performance:

Ensure you’re tracking and checking your performance with each review. The emphasis is not so much on the quarterly performance, as that is primarily a function of short-term volatility. Instead, focus on what you can expect to achieve over the long run, for example, building a performance record over three to five years or more.

Tracking your performance over time will help you determine how your portfolio is performing, how much volatility is embedded in it, whether specific positions are contributing as expected or not, and whether you are on track to achieve your goals.

You should be tracking your portfolio every quarter, but take any one quarter’s performance (good or bad) with a grain of salt. Instead, focus on performance over time and whether you are on track to achieve your financial goals. Without performance tracking, you have no data from which to base decisions.

Initially, reviewing your portfolio can seem time-consuming, but there are commercially available, as well as free, portfolio accounting software packages to help you. Once you’ve got things set up and done a few reviews, you’ll find that it doesn’t take much time at all, and it will greatly increase your chances of achieving your financial goals.

The Crevelings are Thailand-based CFAs who advise expats on personal financial planning. To learn more, visit their website www.crevelingandcreveling.com.

Judging Whether the Price You’re Asked is Fair

When investing, paying the right price is an important consideration,

You know what the price is when the asset is actively traded on an efficient public market like a stock exchange. Whether or not it’s the right one depends on how it compares with the prices of other, comparable investments. It’s important to be sure that they are truly comparable. That is, have similar business operating conditions and managements.

Getting pricing right is particularly difficult with collectables such as rare coins or postage stamps, works of art, where it’s usually impossible for an outsider to know if he or she will be paying a fair price… or is being taken for a ride.

This is an area where there are no simple rules. The more knowledge you have, the less the likelihood that you will blunder. Apart from that, you have to depend on the guidance of a sound and honest expert.

With investments traded on public markets you should be conscious of what is the buy/sell margin – the difference between what you have to pay to buy and what you would get back if you re-sold the asset immediately to the original seller.

Generally speaking a broker who matches buyers and sellers and does not hold stock himself is likely to charge you less than a dealer who does hold stock.

Assets which are easily traded such as gold “bullion” coins – those whose value derives entirely from their precious metal content – command narrower buy/sell margins than those which do not trade easily because the market is “thin.” In Thailand, where I live, gold ownership is so commonplace that the difference between the prices for buying and selling a Baht coin (one containing half an ounce of gold) is only 1 per cent.

Assets which require scarce expertise if they are to be judged valuable or not, such as antiques, command much wider margins than those whose value can be judged easily by members of the public.

However, because a buy/sell margin is large doesn’t necessarily mean that you are being crooked. A big margin may reflect reasons such a degree of rarity or strength of demand by collectors. What is important is that you know what the margin is that you are being asked to pay and that it is a fair one.

Obviously an asset that carries a large buy/sell margin has to be held for a period – usually at least a year – before the price at which you can sell the asset has risen to the level at which you bought it. You can live with a margin that is high, such as 20 per cent, which is a onetime cost, if market prices are rising at a similar high rate.

All Covid Policies Have Been Foolish Failures

Johns Hopkins University, the leading American source of information on the pandemic, has concluded a global study of how countries have acted to fight the virus, and how effective those policies have been. Its conclusion is startling: “We find no evidence that lockdowns, school closures, border closures and limiting gatherings have had a noticeable effect on Covid-19 mortality.”

In other words, the massive disruptions to economies and lifestyles have been an abject failure. Hardly any politicians, in or out of power, have opposed these disastrous policies. Nor have the so-called scientists whose apocalyptic always-wrong mortality forecasts have been thrust down our throats daily.

The Johns Hopkins report suggests that much of the pain lockdowns caused – the children denied education, ruined businesses, mental health issues, undiagnosed cancers – was avoidable. Its study reports that overall lockdowns, for example, reduced Covid mortality by just 0.2 per cent. Border closures have been equally ineffective, with a death rate of just 0.1 per cent.

Such policies with their “devastating effects” are “ill-founded” and should be “rejected out-of-hand as a pandemic policy instrument,” says the university.

It’s unclear why governments committed themselves to radical policies based on forecasts such as those produced by Professor Neil Ferguson and his Imperial College team that had already proved to be so hopelessly wrong in the swine flu epidemic and were again with Covid-19.

The forecasts continue to be hopelessly wrong. In December, for example, Britain’s Sage agency warned the UK government that its health service would be overwhelmed by Omicron variant victims this winter. Every one of its predictions were hopelessly wrong. Death rates are proving to be far, far lower than earlier variants, and not much worse than flu outbreaks.

Commodities and the Hunt for Yield

Prices of many commodities are hitting new highs, with stockpiles of some of the most important at historically low levels, suggesting they’re likely to rise further. It’s a “completely unprecedented” situation says Nicholas Snowdon of Goldman Sachs. Production growth has failed to match growth in demand as economies have bounced back from the pandemic. One reason is lack of investment in new mines and oilfields, discouraged by political hostility to fossil fuels; crops have been poor due to bad weather; supply chains have been disrupted by the virus.

Copper stocks at major exchanges are down to less than one week’s global consumption. Aluminium prices have hit 13-year highs. Natural gas inventories in storage in Europe are below seasonal averages. Shortages have spread beyond traditional commodities to new ones such as lithium.

Investors are rushing into mining stocks as they seek assets that can deliver strong income streams at a time when central banks have kept interest rates ultra-low despite rising inflation. Deutsche Bank expects the five big mining groups listed in London, which have accumulated huge cash reserves, to declare dividends and share buybacks of $24 billion this year.

Mining has emerged as one of the biggest sources of income for investors, with dividends up from just 4 per cent of those declared in 2016 to almost a quarter last year. This partially reflects the fruits of a transformation of the mining industry under a new generation of leaders who have slashed debt, eschewed investment in big projects and shifted to dividend policies that are linked to the amount of cash they generate.

DIE Mandates Are Destroying Universities

The well-known Canadian commentator on social issues, Jordan Peterson, says he has resigned as a tenured professor at the University of Toronto, partly because of its Diversity, Inclusivity and Equity mandates. These require teachers and students to support and preach and prioritize woke principles of supposed social justice.

His opposition to these means that heterosexual white male students trained and qualified by him “face a negligible chance of being offered university research positions despite stellar scientific dossiers.”

The DIE mandates are one of many issues of “appalling ideology” currently demolishing the universities. It is producing a generation of researchers “utterly unqualified for the job.” Peterson says some of his colleagues “even allow themselves to undergo so-called anti-bias training… about theoretically all-pervasive racist/sexist/heterosexist attitudes.”

The accrediting boards for graduate clinical psychology training programmes in Canada are planning to refuse to accredit programmes unless they have a “social justice” orientation. Psychologists, lawyers and other professionals are “terrified” of their “now-woke” governing colleges.

Peterson says: “We are now at the point where race, ethnicity, ‘gender’ or sexual preference is, first, accepted as the fundamental characteristic defining each person… and, second, is now treated as the most important qualification for study, research and employment.”

Easy Ways to Life and Passports in Latin America

One way to obtain the citizenship and passport of another country is to get permanent residence status. Most countries will then grant citizenship after five years. Many are in Latin America…

Argentina offers citizenship after only two years of uninterrupted permanent residency. That requires showing that you have enough income to support yourself or that you’ve been offered a job.

Brazil: The easiest way is through the economic residency programme, which requires a minimum investment of 150,000 Reals (about $30,000) in a business. Citizenship comes after four years of permanent residency and proficiency in Portuguese.

Ecuador offers one of the shortest routes to naturalization – just three years of residency. The easiest way to acquire resident status is to invest $25,000 in a certificate of deposit from a local bank or in a property.

Panama offers an easy route to permanent residency for citizens of 47 specified countries. Not much money is required, but applicants have to show proof of some meaningful economic activity in the country such as ownership of real estate or an employment contract.

Paraguay requires you to submit your application for residency in person and to open a local bank account with at least $5,500. After three years in residency you can apply for citizenship.

The Boom in Residential Property

Three fundamental forces explain why house prices are so high.

One is the strength in household balance sheets. Well-off people in stable jobs have driven the surge in prices. In America the average credit score for someone taking out a government-backed mortgage is around 750 – far higher than before the financial crisis. Low interest rates mean that mortgage-debt-service payments are the lowest on record.

Shifting preferences are a reason why global house prices may stay high. More people are working remotely, meaning greater demand for at-home offices; others want larger gardens. This race for space explains about half of the rise in British house prices during the pandemic. Across the rich world household savings rates remain unusually high, allowing people to invest more in property.

Another important reason why houses are high is shortage of supply. Builders are grappling with shortages of labour; higher costs and delays for raw materials such as cement, copper, lumber and steel. Housebuilding relative to population has fallen to half the level of the mid-60s. America is 3.8 million homes short now compared to 2.5 million in 2018.

India’s Strong Potential

India should be “a prime object of focus for growth-oriented equity investors,” whether they be focused on Asia, emerging markets or all-world, says Jefferies’ Chris Wood. He reckons that its leading stock-market index, the Sensex, should reach 100,000 within five years – an annual average growth rate of more than 11 per cent. He assumes a 15 per cent earnings-per-share growth rate.

A fund for individual investors to consider is London-listed Aberdeen New India Trust, whose price has trebled over the past eight years.

Eoin Treacy says that India is one of the few places with potential for strong organic growth. It’s likely to surprise on the upside because it will reap maximum benefit from its demographic dividend. It has a large young population and a government elected with a mandate to find jobs for them.

India’s markets are subject to “wild swings,” so investors are best served by willingness to buy during medium-term corrections. Shares are currently trading in the region of the trend mean after being boosted by a favourable budget.

Fed Policy to Combat Inflation

Presumably America’s central bankers are having serious doubts about the efficacy of the econometric models prepared by the Federal Reserve staff, which “failed so lamentably” to predict last year’s rise in inflation, Chris Wood comments.

Nevertheless, they will be extremely reluctant to revert to a strict rules-based approach to policymaking. To do so would imply Fed tightening of its funds’ effective rate from the current 0.8 per cent to the 3 to 6 per cent range. That would create the sort of havoc in markets that would trigger a U-turn long before such a rules-based approach could be fully implemented.

A continuing decline in American share prices, taking the S&P 500 index to where it was trading in November 2020, is “certainly possible” given the need of the Biden administration, with its fears of Democrat losses in the mid-term elections, for action by the Fed to combat inflation. That would mean the index, which last month reached a low point of 12 per cent below its peak, continuing to fall to 30 per cent below. Too painful, I’m sure.

Protecting Your Interests

The 2020s could be the nastiest decade that we’ve had since the Industrial Revolution of the early 1800s, notwithstanding huge advances that continues to be made in most areas of science and technology, says American commentator Doug Casey. Increasing levels of debt and high government spending are likely to lead to a major financial upset, serious economic problems and a clamour for “strong leadership”.

How should the average person prepare for this? Casey says the first principle is to produce more than you consume and save the difference. “Put your savings in the safest form possible… Basically, gold and silver coins in your possession.”

Secondly, try to have meaningful assets outside of the political jurisdiction or country that you live in. “Financial risks are huge today, but political risks are even greater.”

Thirdly, perfect your skills as a speculator. Most of the real wealth in the world will have changed ownership by 2030.

Drivers Are Reluctant to Switch to Electric Cars

Drivers hesitate to switch to electric cars because of range anxiety and lack of fast-charging infrastructure, says business writer John Thornhill. Based on his experience driving a Volkswagen ID.3, they are right to be wary. “Volkswagen may know how to build hardware, but its mapping and voice-recognition software is dire. On one occasion our car flagged nearby Indian restaurants rather than the fast-charging stations we had requested.

“Electric vehicle drivers also have to contend with fragmented charging services requiring a baffling array of different apps, inconveniently located and poorly signposted charging stations; faulty points; opaque pricing; and lengthy stops.

“Cross-country journeys have to be planned with near-military precision to ensure you do not run out of energy. Even with that, our trip took nearly one-and-a-half as long to reach our destination as previously in a diesel car.”


Vaccine profits: The British Medical Journal, one of the world’s oldest, has demanded the full and immediate release of all research data related to Covid-19 vaccines and treatments. It accuses pharmaceutical companies of “reaping vast profits without adequate independent scrutiny of their scientific claims.” Pfizer has said it won’t begin considering release of the trial data for its vaccine before May 2025. Even more extraordinary is that the Food & Drug Administration is involved in a legal battle to allow it 75 years to withhold publication of its data on the Pfizer and Biontech vaccines.

Vietnam: It has one of the fastest growths of the middle class in the world, expecting to see its middle-class population almost double to 56 million by 2030. This is driving increasing demand for modern housing, connectivity and urban infrastructure.

Population is expanding beyond its traditional urban centres (HCMC and Hanoi) towards neighbouring provinces. Rapid urbanization increases opportunities for property development, especially when coupled with the rapid rise in infrastructure, which is to be a major target for public investment – the 2,000 km North-South Expressway, airports, a deep-sea port, 5G infrastructure and an LNG terminal.

Transportation: Shortage of trucking capacity is a major source of rising inflation in the US. The annual inflation rate hit 17 per cent in December; the number for the long-haul sector was even higher, hitting 25 per cent.

Young workers seem to be shying away from the driving jobs. Four out of every five truckers today are aged above 45.

Pundits predicted that blue-collar jobs like truckers would be wiped out by robots, but in reality widespread switching to automation is slow to happen because of political opposition and regulatory constraints.

Mortality: Death rates among Americans of working-age (18 to 64 years old) are 40 per cent higher than they were before the pandemic, according to the life insurance industry. “We’re seeing right now the highest death rates we’ve ever seen in the history of this business” says Scott Davison, CEO of OneAmerica. The company is processing claims at a record rate because deaths attributed to Covid are greatly understated, or because people can’t get the medical care they need because hospitals are overrun.

Advancing its interests: China is strengthening its ties throughout the Mideast through billion-dollar contracts, mainly for energy and transport infrastructure. For example it struck agreements for construction projects worth more than $10 billion in Iraq last year. New deals signed between Chinese and Iraqi groups include the big Al-Khairat heavy oil power plant, rebuilding the international airport in Nasiriyah, and developing the Mansuriyah gas field and building 1,000 schools.

There is a growing perception among Arab leaders that the US is disengaging from the region. The Chinese are moving in to replace the Americans.

Vitamins: New data from Israel provides convincing evidence that vitamin D supplements can make a major contribution to reducing the risk of serious illness or death from Covid-19. Medical researchers have shown that 26 per cent of patients deficient in the vitamin died, but only 3 per cent of patients with normal levels. Covid patients hospitalized who had vitamin D deficiency were 14 times more likely to end up with critical or severe conditions.

Boost for iron ore: China has offered its huge steel industry five extra years of rising carbon emissions. It’s another sign that the government is setting softer targets for its decarbonization plans. President Xi Jinping says carbon emission reduction has to take a back seat to ensuring that living standards are protected. In a reaction to the latest concession, delaying the date for peak carbon emissions to 2030, prices of iron ore have surged past $150 a ton.

Losing momentum: “The consumer has spoken” says investment bank Morgan Stanley. The University of Michigan consumer sentiment index has registered its lowest reading in ten years. It was largely due to high prices combined with lower real (inflation-adjusted) income and household net worth. “We continue to see depressed consumer sentiment, high prices and negative real wage growth posing a risk to consumption in the first half of this year.”

Nancy Pelosi: The Democrat leader and House Speaker paid $489.000 between October 2020 and December 2021 for hiring private aircraft for her campaigning. “Flying on a private jet is probably the worst thing you can do for the environment” says T&E aviation director Andrew Murphy. “Yet super-rich super-polluters are flying around like there’s no climate crisis.”

Confidence in leadership: Edelman’s annual “trust barometer” reports that in China public trust in the government has risen to a record 91 per cent. The equivalent rating for the US administration is only 39 per cent.

If you know someone you’d like to receive ‘On Target’, email your request to me at: afrodyn@gmail.com.

On Target is a free, private newsletter for Martin Spring’s worldwide circle of friends and contacts.