The Oxford Anti-Terror Portfolio: Asset Protection that Doubles the S&P’s Return
by Alexander Green, Chairman, Investment U; Investment Director, The Oxford Club
Thursday, September 27, 2007: Issue # 715
This week CNBC invited me to appear on their morning program “Squawk On the Street,” with hosts Mark Haines and Erin Burnett. The topic was “Anti-Terror Plays.”
The reason they contacted me is because of the strong performance of the Oxford Anti-Terror Portfolio, which I initiated back in February 2003.
Since then, we haven’t had any terrorist attacks on American soil, although many of our allies – Spain and Britain, for example – haven’t been so lucky.
Yet, since inception, our Oxford Anti-Terror Portfolio has more than doubled the performance of the S&P 500, rising over 20% per year, even though this is a (pardon the pun) “defensive” portfolio.
The Thinking Behind the Oxford Anti-Terror Portfolio
No one knows what the chances are of another terrorist attack on the U.S. mainland. True, the FBI, the CIA, the Department of Homeland Security, the Department of Defense and many others are working to keep us safe. But it’s also true that we have many enemies and our borders are hardly secure.
So we think about the potential for future terrorist attacks the way we think about natural disasters. We don’t know where they’ll occur, we don’t know when they’ll occur, but they almost certainly will occur some time in the future.
Rather than scrambling to react in the aftermath, we think it makes sense to plan ahead in order to protect the investment portfolios we’ve worked so hard to build.
As I’m sure you recall, after 9/11 the stock market closed for a week, but then sold off sharply. The economy faltered, too. That may happen again in the future.
Even if it does, however, we will all still have economic needs that have to be met, including food, clothing, shelter, healthcare, and so on. Our strategy with the Anti-Terror Portfolio is to hold a combination of bonds, gold shares, foreign stocks, defense contractors, politically-safe oil companies and various non-cyclical stocks. Here’s why
Quality and Diversity Pay Off
In the immediate aftermath of an attack, there is likely to be a knee-jerk flight to quality. And we all know what the world’s highest-quality securities are: U.S. governments. So our Anti-Terror Portfolio contains a slice of Treasuries.
Gold, too, traditionally rallies during periods of economic and political uncertainty. And gold shares are a leveraged play on the metal. So we own the Market Vectors Gold ETF (AMEX: GDX). It holds all the world’s major gold and silver stocks, including Newmont, Barrick Gold, Freeport, AngloGold, Kinross and Harmony.
We also favor non-cyclical stocks like utilities, food companies, and healthcare firms. After all, come what may, you’re still going to have to pay your power bill, eat three squares a day and visit your doctor.
Foreign shares may hold up better than U.S. shares for two reasons. One is that a terror attack in the U.S. is likely to send our domestic markets reeling. But the response in Japan or Hong Kong or Switzerland may be more muted. Plus, other currencies may appreciate against the dollar.
Defense contractors are another good anti-terror play. After all, these companies are building the arsenals to help defend against future attacks. And government expenditures in this area are rising.
Finally, let’s not forget that much of the world’s imported oil comes from a veritable “rogue’s gallery” of nations: Iran, Iraq, Russia, Nigeria, and Venezuela to name just a few. Domestic, Canadian and European energy producers may go to a premium if there is a supply disruption in one of the world’s many hotspots.
Everything in our Anti-Terror portfolio is designed to help you preserve and protect your investment portfolio, even if the unthinkable happens.
Some say the prospect of future terror attacks are unpleasant to contemplate. I don’t disagree.
But recall the words of legendary fund manager Peter Lynch:
“If you’re gonna panic, do it early.”
Good Investing,
Alex
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