Let’s start with the fun bits (for a change).
Two of the most successful Dynamic portfolios are up for review this month, Bonkers and Dynamic Asia and Emerging Markets.
Bonkers is, of course, bonkers. Since inception in 1995 it is up 39,076%. That is more than 24x the index (FTSE World). In the last 6 months it is down nearly 15%, but over the year it is up 76%. It is pantomime investing – with each iteration you want to boo or hiss, gasp or belly laugh. It might be a very small corner of your portfolio, for fun, but should not be anything more.
What Bonkers does illustrate is the power of using Momentum for fund selection. You can read more here on how Bonkers is constructed.
The Dynamic Asia and Emerging Markets selection which illustrates the power of this approach in what should be a substantial part of your overall portfolio – your allocation to Asia. It is up 17.37% in the last 6 months, more than twice the index, and up over 100% in the last year.
Since inception in 1999 (a terrible time to start investing) there is a 16,450% profit. That is more than 25x the equivalent index (MSCI AC Asia Pacific). The promoters of index trackers, what I call the “Guardians Of Mediocrity”, don’t get this.
Of course over short periods you might feel smart being in a tracker. So let’s consider how that Dynamic portfolio compares to being in an S&P 500 tracker. Over the same period from 1999, with net income reinvested, the S&P 500 is up 921%. This is little more than one-twentieth of the profit you would have made on that Momentum-driven Asia portfolio – put another way, the gain on the Asian portfolio was 19x that of the S&P 500.
What About Charges?
Ah, but what about charges? Isn’t that the big issue? That Dynamic Asia performance is net of fund charges.
To draw a performance comparison I must now deduct a level of charges from the S&P performance to reflect the return of the tracker. According to AI, the average charge on that tracker over all of those years was approximately 0.4% – more than that in the first few years, and now much lower, so this is an average.
This means the S&P tracker grew to £2.47m versus £16.55m for the Dynamic Asia portfolio, more than 6x greater. Imagine that e.g. a pension fund 6x greater… an extra £14m by applying a straightforward process.
In 1999 you might very reasonably have excluded the bubbly US from your portfolio (we did). And you might also have had a fixed asset allocation to reasonably priced Asia (we did). It doesn’t sound very different to where markets are positioned in 2026.
Beware those Guardians Of Mediocrity. Oh and they are the same “experts” who don’t think a stop-loss is a good idea, and believe you should just buy and forget – dangerous people – who are totally unaccountable.
For new readers, do go here for the rich history of Momentum style investing over two centuries.
The Commodity Cycle – A Variety Of Opportunities
Also positively, let’s turn to opportunities in commodities. In the 28th November note last year I said:
· Every 40 years or so the monetary world changes, with a bang…
· …that is when the next commodity cycle begins in earnest…
· …when policymakers can no longer be relied upon to cushion the markets from catastrophic losses.
· The most likely trigger for that bang is resurgent inflation.
· Gold will enjoy a profitable long term position in portfolios…
· …but the bigger opportunity is now moving to oil.
That has worked out reasonably well so far, and if a traditional commodity cycle is under way, it is early days.
In recent days the latest missive from Goehring & Rozencwajg (G&R) has crashed on to my desk, all 50 odd pages. Here is a summary on key bits:
· Markets are completely blind-sided on what is happening with oil. “Almost nobody” is looking in the right place. It’ll soon get ugly.
· The emerging world is struggling badly already – this will get worse, with significant negative consequences for them.
· Uranium price was hit by investor profit taking in recent months, but the fundamentals are now even better – when it recovers, the price will move up fast.
· Gold is still in a correction, based on their analysis of historical precedents rather than my behavioural angle.
· Agriculture prices will go much higher based on a confluence of climate events from now (not just El Niño).
· Fundamentals on copper are no longer positive, but investor enthusiasm for copper could drive it higher – be careful.
· On platinum/palladium, investors are missing what is going on with hybrid vehicles…
· … electric vehicles (EVs) have won hands down in China, but not elsewhere in the world, notably the US. Sharp price moves were forced by ETF investor liquidation – now mostly over. The prices are cheap, and fundamentals remain positive.
In the last couple of webinars it was stressed that your portfolios need to be somewhat more spread than is typically necessary. There are a lot of trip-wires – and you don’t want all of your holdings to trip over the same wire. It is necessary to hold funds which are genuinely different from each other. Global agriculture is a case in point.
G&R make the point that, in addition to the unfolding El Niño, there is “an unusual combination of other meteorological and geopolitical cycles”, and it parallels the great Asian drought of 1886/7 “which produced one of the worst famines in history”:
“Researchers believe the drought’s extraordinary severity and persistence resulted from an unusual synchronization of several global ocean anomalies: a record-breaking and long-lasting El Niño, much like the one now developing; the emergence of a negative Indian Ocean Dipole; and exceptionally warm water temperatures in the North Atlantic occurring at the same time.”
A number of these cycles are repeating now, and G&R believe the impact will be felt over several years. The final piece of the jigsaw:
“Almost no one today has any interest in investing in agricultural commodities. From a contrarian perspective, this only makes the setup more interesting.”
An ETF option is WisdomTree Agriculture, and Barings Agriculture is a managed fund. It’s worth repeating that this shouldn’t be more than one uncorrelated corner of a very well-spread portfolio.
As I said last week, August was mostly quiet… except for bond markets, and they are again the focus of media attention in the last week. The main concern is the US, as its bond market is gargantuan, but the UK, France, and Japan are also in the cross-hairs.
Talk of crisis abounds – some driven by petty domestic politics, others by hysterical financial reporting. It is certain that the status quo will break down – but it doesn’t feel imminent. Bond investors are being sorely tested by lack of government action to address debt piles, and nerves about rising inflation risks. But the dam is holding for now.
Little movement in global stock markets over the week. The FTSE 100, China, US, showed very small gains. Japan was worst, down 2.9%, and the FTSE 250 lost 1.2%. The latter was almost certainly down to jitters as another UK General Election was being mooted – it feels like a decision on that will need to be made this month – does Burnham feel he has sufficient momentum now? Interesting. An election announcement in the coming weeks will push the UK indices lower.
On commodities, oil had a good week (up 7%). Platinum and palladium enjoyed similar gains, and on the chart could be about to break upwards. Uranium and copper were both down towards 5%. If the end of July low for Global X Uranium holds, there could be a lot more upside.