Portfolio Tweak

Earlier this week I made an across the board swap that is worth talking about. I sold China Mobile (CHL) and then replaced it with Partners Communication (PTNR).

From the top down this does not change the exposure to equities or to the telecom sector but it does mostly eliminate China and increases Israel (we've held Teva (TEVA) for years now). We still have a little China as embedded in some of the ETFs we use.

My history in the position was that I bought it in the low $60s a year and a half ago. I sold out of Sinopec (SNP) in mid 2007 thinking a big decline was very possible. I thought China could cut in half fundamentally and then overshoot another 10%. My sale of SNP was early and my purchase of CHL was early as the China market ended up with a 70% decline before bottoming. CHL seemed to drop almost immediately after I bought it then leveled out for a while, puked down when markets were panicking came back a lot and has been in the high $40s for a long time, with a couple of exceptions.

From the bottom up I can't complain about the stats or the subscriber growth but the stock has not served its purpose as a proxy for China in the manner I had hoped for. From the top down China has become a little riskier in the last few months given the myriad of issues involving over heating and over capacity. I'm not sure from here that investors have to own a company with half a billion customers out of 1.3 billion or so in the total population--the growth seems like it could slow down. As a note the number of subscribers when I first bough the stock was about 100 million lower. I'd call that good growth but the market seemed not to care.

I don't expect to stay out of China very long at all. For all the issues that exist, all the bubble talk and so on that market is down 50% from its high. I think that a resource based or industrial based stock or ETF might serve as a better proxy but I am still mulling.

On a related note a reader asked why I don't talk much about REITs. I sold my last REIT about three years ago. Essentially I have given up on them as being diversifiers. I got lucky with the timing of that sale but as things unfolded they generally seemed to look just like financial stocks.

REITs were long heralded as offering diversification. Well when investors needed that the most REITs failed. You can reasonably argue that all correlations went to one during the meltdown but that is not exactly right. Several of the countries I own peaked months after the US did and gold went up throughout. Obviously broad based inverse funds went up as well.

Looking forward I think real estate is so fouled up in terms of prices and even rents that any recovery can happen without me or our clients. One the reasons I've written so much about farmland stocks has been to explore whether or not they could fill the role the REITs were supposed to. While I think they can be valid holdings I am not so sure that they would zig a whole lot the next time global markets fall in unison.