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November, 2009


China has one of the fastest growing economies in the world and may in fact, within a few decades, overtake the U.S. as the planet's greatest financial system. That country's recovery from the market debacle of 2008 to early 2009 has been remarkable. I am not putting down our nation's capacity to hold the preeminent position and think in the long run the odds favor us, as things stand. Nonetheless, between our two powers it appears likely there will be a period of fluctuating hegemony. Just which, though, is going to be number one vs. number two at any given point is hard to predict.

It may be wise, then, to hedge U.S. investing bets with at least a significant percentage in China's assets. An easy way to do so, and with less risk than via individual equities, is through a closed end fund or mutual fund. There are many from which to choose. Three I particularly like are: The China Fund (CHN); Mathews China Fund (MCHFX); and Templeton Dragon Fund (TDF). Each has performed better over the past decade than the S&P 500 Index. While past results are no guarantee of future performance, these assets seem to have a good chance to outperform the major U.S. market indexes in the years ahead as well.

By dollar cost averaging, buying about the same amount of new assets at regular intervals, one can acquire more shares during market dips and so have a mean discount in one's purchases. This strategy can be rather effective with the typically more volatile overseas markets.

Suppose, for instance, one had decided a decade ago to keep things simple and invest $6000 a year ($500 a month, if one were saving up for the annual purchases) through a tax-deferred account (in one's employer sponsored 401k plan, for instance) in The China Fund (CHN), and that the investments began at the market price per share on the first trading day of November, 1999, and continued on the first trading day of November of each year thereafter. Assuming one had not withdrawn or taken distributions in any funds and that dividends and capital gains had been reinvested, one now should have about 3775 shares, at an average cost of around $17.50 per share, for a net gain (based on the close of trading market value on 11/19/09 of The China Fund shares) of around 56%, resulting in a total present value (for one's $66,000 cost basis) of $103,000, an annualized return of over 8% (given the mean per share hold period of roughly 5.6 years), not bad considering that, even after the run-up of late, the average U.S. share has been down significantly over the past decade.

The following table breaks out those purchases:

Date Investment Share
11/1999 $6000 $9.56 627.6 627.6 $6000
11/2000 $6000 $9.06 662.3 1289.9 $11,686
11/2001 $6000 $10.85 553.0 1842.9 $19,995
11/2002 $6000 $12.65 474.3 2317.2 $29,313
11/2003 $6000 $36.60 163.9 2481.1 $90,808
11/2004 $6000 $29.65 202.4 2683.5 $79,566
11/2005 $6000 $24.78 242.1 2925.6 $72,496
11/2006 $6000 $30.25 198.3 3123.9 $94,498
11/2007 $6000 $48.81 122.9 3246.8 $158,476
11/2008 $6000 $20.53 292.3 3539.1 $72,658
11/2009 $6000 $25.49 235.4 3774.5 $96,212
- $27.32 - 3774.5 $103,119

Ten years from now, The China Fund, Mathews China Fund, and Templeton Dragon Fund will no doubt have had many new ups and downs, but a dollar cost average investor has a good chance to have seen nice gains over time on her or his purchases in any of these investments.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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