This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

For Emerging Market Gains, Limit Risks

Stocks in this article: VWO BIK EMB PXR VIX SZO CMD

NEW YORK ( TheStreet) -- Since May 9, 2009, I have suggested that investors bet against the dollar by purchasing mutual funds and exchange traded funds in Africa, Latin America and Asia. As I reported in a recent article, these investments have done well:

Was I lucky? I don't like to think so: I made strong economic arguments for these investments. And even with their price run ups, I plan to stick with them. Why? Because I believe these regions will be the growth engines of the 21st century and the dollar will weaken further.

Long positions:

But there is one thing that bothers me: I have long positions in all these investments with no protection. At this point, I would settle for lower returns if I could somehow reduce the downside risk.

What do I know about limiting downside risk? Not much. Sure, I have heard about hedging, puts, calls, etc., but I thought I could learn a lot more by talking to someone who is a real professional at limiting risk.

Matt Lenehan earned an MBA from the Tuck School of Business at Dartmouth. He received the Chartered Alternative Investment Analyst (CAIA) professional designation for "alternative" asset classes, including real estate, private equity and hedge funds. Matt invested endowment funds at Dartmouth before co-founding Newport Investment Management with two partners. Like endowments, Newport worries a lot about downside risk.

Elliott: First, I want your opinion -- do you think I've just been lucky?

Matt: No. As the following table indicates, your holdings compare favorably against a representative basket of broad and BRIC-centric exposure. As compared to a 75%/25% blend of Vanguard Emerging Markets ETF (VWO) and SPDR S&P BRIC 40 ETF (BIK), your portfolio has significantly outperformed portfolios with comparable risk. This more than justifies the higher expense of using some active investing by mutual fund managers.

Reducing risk:

Elliott: Why is limiting risk such a focus? And what do you do at Newport to limit risks?

Matt: Endowments got hit hard by losses resulting from the U.S. banking collapse. Investments with equity exposure, whether publicly traded or through private partnerships, contributed to 19% average endowment losses for the year ended June 2009 (Per 2009 NACUBO-Commonfund Study of Endowments Top endowments like Harvard and Yale lost 25%-plus. As a result, many boards revisited risk and now see that allocations to hedge funds, which can short and still lost 12% in the same year, are not enough.

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs