The Cream Portfolio

February 15th, 2012
in contributors

by Guest Author Paul Hanly, Thorts on Investing

creamSMALLGive me the Cream
The Cream Portfolio comes in two flavours, Developed and Emerging. Each flavour has a special recipe.

Emerging Cream has a sweetness in excess of 3, while Developed Cream is much less sweet at only a bit over 1. (Average the top 6 scores in the far right column of each of the tables below to see what I mean.)

I sure wish I'd have seen the recipe for Emerging Cream 10 years ago!

Follow up:

What are the Recipes?

Developed Cream is made from:
1. New Zealand
2. USA
3 Ireland
4. Australia
5. Singapore
6. United Kingdom

Emerging Cream is made from:
1. Indonesia
2. Phillipines
3. Thailand
4. Colombia
5. Peru
6. South Africa

Can I improvise?
All good cooks improvise. You can have Emerging Cream with Developed Cream, or you can leave out or add ingredients. Or you could choose to mix up an entirely different batch, but it might not be cream, although it might become cream later. You could leave out the last 1 or two ingredients in each flavor, but that would reduce the diversification and increase the risk. You could add more ingredients and increase the diversification, and probably reduce the "risk"and probably dilute the return. You could make a Mixed Cream flavor with some ingredients from each recipe.

Show me the Money!

Here are two charts that show you the money about the Cream Portfolio.

Developed Cream (Click on Table for larger image.)


Emerging Cream (Click on Table for larger image.)


Look at the returns in the Emerging Cream. It has certainly been a lot sweeter than Developed Cream!


Making the Cream Portfolio is based on analysis of the best performing markets in USD terms over a number of different periods weighted towards following recent trends.

The data comes from  MSCI Barra Performance tables for Countries.

I have weighted 3 Month To Date, 1 Year to Date and 3 Year To Date performance with multiples of 10, 7.5 and 5, respectively, then calculated a total.   Then I have ranked each of the tables by the total score.

In each time period in each table I have coloured the better performances in Green and the worst ones in Red.

From the consistency of the Green and Red you can see that some countries know how to make the stock market go up or are blessed with the right resource mix and some don't.

Maybe the terrible performances of eg the EMU countries will revert. If they do it will be picked up through the heavier weightings of  3MTD and 1YTD compared to 3YTD.

You can get the data for free and make your own version and play wioth different weightings, but you can see from the consistency of the colours across time that it won't change the rankings dramatically.

Every 3 months (or more or less frequently if you like) you can redo the exercise and adapt the recipe.

A Few Caveats
This is stock market cream. Sometimes stock market cream can go sour virtually over night, like in 1987. Sometimes it goes sour slowly but still goes very sour, like in 2008. You might decide that too much stockmarket cream is not good for you and add some sort of Long Term Bond Cream to the mix. When you play with recipes sometimes you spoil them and wish you had stuck to the original. Nothing works all the time, but I was impressed by the historical consistency as well as the sweetness of both the Emerging Cream and Developed Cream. Finally recipes go out of favour and what was good last year might not be good next year!

Related Article

All Ordinaries Market Overview:  Projecting from History by Paul Hanly

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