Slide 1 - Metropolitan DC Chapter AAII

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					   DAL Investment
     Company

   NoLoad FundX

FundX Upgrader Funds

     Janet Brown
DAL Investment Company
   Money Management since 1969 –
    $2 million minimum
    $1.3 Billion aggregate assets under management.

   NoLoad FundX Newsletter since 1976 –
    13,000 subscribers
    DAL‟s proprietary newsletter composed of hypothetical portfolios of
    investments chosen using the Upgrading strategy.


   Manager of FundX Upgrader Funds since 2001 –
    $850 million
     While the funds are no-load, management
     fees and other expenses still apply. Please
     refer to the prospectus for further details.
                       Agenda
• 40 Years of Following Market Leadership
   – What has happened in the market and our firm
• The Upgrading Strategy Applied
   – How we build portfolios and manage risk
   – Relative performance and observations
• New Tools and How to Use Them
   – Why we built them
   – What we’re working on
• Q&A
History of Upgrading
Accolades
    What is Upgrading ?


   Why Upgrading Works
   Current Performance is Key
   Many Ways to Upgrade
   Common Objections
Upgrading

          An effective,
      disciplined response
           to changing
       market conditions.
20 Year Performance
(Average Annual Returns 1987 – July 2008)                                                     15.2%


                       11.8%




                                               4.5%
                                                                      3.0%




                   Stocks                 Average                  Inflation                Upgrading
            As measured by the S&P
                  500 Index1
                                          Equity
                                          Investor

Source of chart data: Dalbar, Inc. Quantitative Analysis of Investor Behavior, July 2008 update. QAIB calculates investor returns as
 the change in assets, after excluding sales, edemptions and exchanges Upgrading „s performance per the Hulbert Financial
 Digest.
How Upgrading Works
Stay with the Winners

  Invest in the funds
   currently leading the
   market.

  Stay with the winners
   and Upgrade the
   laggards.
10 Year Performance
Why Upgrading Works

        Managers Don‟t Change.
             Markets Do.


 Most managers have a particular investment
 strategy that performs well in some but not all
 market environments.
Rotation of Market Leadership


    Value and Growth investment styles

    Small cap and Large cap

    International and Domestic
Upgrading vs Market Indices
International & Domestic
Upgrading & Market Changes
Upgrading & Market Changes
Upgrading Fundamentals
 Don‟t Forecast. Accept the market‟s trends whether
  or not we understand the reasons for these trends.

 Realize the market will change. Stay alert in order
  to recognize changes in the market environment.

 Move  incrementally. Rotation generally occurs in fits
  and starts, and often fails to endure.
Monthly Upgrader Portfolio

• Core of Class 3 funds

• Limited exposure to
more volatile funds

• Holds funds a
minimum of 90 days,
often longer
• Usually lower turnover
Yearly Performance Record
Upgrading vs Buy and Hold
                                    2000 through 2008



                      Cumulative   Annualized

   Monthly Upgrader
                       40.41%        3.84%
   Portfolio
   Russell 2000        11.07%        1.17%
   DJIA                 -6.93%      -0.71%
   EAFE                -19.18%      -2.34%
   S&P 500             -28.27%      -3.62%
   Nasdaq              -61.25%      -10.00%
Managing Volatility
    Flexible Income Strategy

?
          Setting Expectations
• Upgrading only outperforms 55% of the time
• Class 3 funds are typically fully invested
• The beta (risk) of Upgraded portfolios changes
  over time
• Many individual trades do not add value
• Upgrading usually lags in transitions
• Upgrading has consistently outperformed
  through market cycles for long term investors!
Market transitions
27+ Year Performance
Tax Efficiency of the MUP
                         2008: Life on the Left Tail
                                                                                                      2007
                                                                                                      2005
                                                                                                      1994         2006
                                                                                                      1993         2004
                                                                                                      1987         1992
                                                                                                      1984         1988
       Calendar Year Stock Returns                                                                    1978
                                                                                                      1970
                                                                                                                   1982
                                                                                                                   1979
                            (1825-2008)                                                               1956
                                                                                                      1953
                                                                                                                   1971
                                                                                                                   1968
                                                                                                      1948         1965
                                                                                                      1947         1964
                                                                                                      1939         1959
                                                                                          2000        1923         1952
                                                                                          1990        1916         1949         2003
                                                                                          1981        1912         1944         1999
                                                                                          1977        1911         1942         1998
                                                                                          1966        1906         1938         1996
                                                                                          1962        1902         1926         1991
                                                                                          1960        1896         1921         1986
                                                                                          1957        1895         1919         1983
                                                                                          1946        1894         1909         1980
                                                                                          1940        1892         1905         1976
                                                                                          1934        1889         1900         1972
                                                                                          1929        1888         1899         1967
                                                                            2001          1914        1882         1897         1963
                                                                            1973          1913        1881         1886         1961
                                                                            1969          1910        1875         1878         1951         1997
                                                                            1941          1890        1871         1874         1950         1995
                                                                            1932          1887        1870         1872         1943         1989
                                                                            1920          1883        1869         1864         1925         1985
                                                                            1903          1877        1867         1858         1924         1975
                                                                            1893          1873        1866         1855         1922         1958
                                                                            1884          1861        1865         1850         1918         1955
                                                              2002          1876          1860        1859         1849         1901         1945
                                                              1974          1854          1853        1856         1848         1898         1936         1954
                                                              1930          1841          1851        1844         1847         1891         1928         1935
                                                              1917          1837          1845        1842         1838         1885         1927         1908
                                                              1907          1831          1835        1840         1834         1880         1915         1879
                                                2008          1857          1828          1833        1836         1832         1852         1904         1863         1933
                                  1931          1937          1839          1825          1827        1826         1829         1846         1830         1843         1862

                           -50%          -40%          -30%          -20%          -10%          0%          10%          20%          30%          40%          50%          60%
Source: Robert Shiller, FMRCo (MARE) as of 12/31/2008.
Recovery Times
            Basic Choices
•Assets
  •Stocks
  •Commodities
  •Real Estate
•Debt
  •Bonds
  •Preferred Stocks
•Cash
Investing in Cash Not A Compelling Long-Term Strategy
                                                                       Value of $1 Invested
                                                                                 (1925-2008)
  $10,000
                                                     S&P 500
                                                               Average
                                                     Bonds                        Ending
                                                     Cash      Annual
                                                     U.S. Inflation               Value
    $1,000                                                      Return
                                     S&P 500                    9.6%            $2,023.72
                                     Bonds                      5.5%             $83.81
      $100                           Cash                       3.7%             $20.50
                                     U.S.
                                                                3.1%                  $12.17
                                     Inflation
        $10




         $1




         $0




                                                                                                                                                                                      2008
              1925

                     1929

                             1933

                                      1937

                                              1941

                                                        1945

                                                                1949

                                                                        1953

                                                                               1957

                                                                                        1961




                                                                                                      1969

                                                                                                              1973

                                                                                                                       1977

                                                                                                                               1981

                                                                                                                                       1985


                                                                                                                                               1989

                                                                                                                                                       1993

                                                                                                                                                               1997

                                                                                                                                                                       2001

                                                                                                                                                                               2005
                                                                                               1965




  Source: Ibbotson, FMRCo (MARE) as of 11/30/2008. Figures assume reinvestment of capital gains and dividends, but does not reflect sales charges or taxes, which would lower
  these figures. Past performance is no guarantee of future results. You cannot invest directly in an index. See footnotes for important index definitions. Cash – Ibbotson Associates
  SBBI 30 Day TBill Total Return Index; Inflation – Ibbotson Associates SBBI U.S. Inflation; Bonds – MARE Custom Bond Index (see footnotes page for details.)
       What We Know

• Limited Investment Options
• Current Yields of Bonds and Cash
• Recent Stock Market Returns
• Current Stock Valuations
2009: S&P500 Index YTD
    What We Don‟t Know

• Future Inflation
• When Interest Rates will Go Up
• Will the Stock Market Bottom?
    - When and at What Level
  3 Year Investment (1925-2008)
250.00%



200.00%



150.00%



100.00%                                        Maximum
                                               Minimum

 50.00%                                        Mean




  0.00%
           Stocks   Bonds   Cash   Inflation

 -50.00%



-100.00%
      10 Year Investment (1925-2008)
700.00%



600.00%



500.00%



400.00%


                                               Maximum
300.00%                                        Minimum
                                               Mean

200.00%



100.00%



  0.00%
           Stocks   Bonds   Cash   Inflation

-100.00%
     20 Year Investment (1925-2008)
3000.00%




2500.00%




2000.00%



                                               Maximum
1500.00%
                                               Minimum
                                               Mean

1000.00%




 500.00%




   0.00%
           Stocks   Bonds   Cash   Inflation
Allocation Changes Over Time




Year 1                                                 Year 25
Years    Years     Years      Years            Years
 1-2      3-7      8-12       13-17            18-25




                 Cash      Bonds      Stocks
Allocation Changes Over Time




2014
2009
2032-20342034
2024
2030                     2034                           2034   2034




                20%
                10%
                100%
                 8%
                50%             30%
                                24%
                                42%
                                 0%           38%
                                              60%
                                              68%
                                               0%
                                              20%

                       Cash           Bonds         Stocks
          Risk Classification and Portfolio
            Construction /Management
    Current High Ranking Funds             Portfolio Weight
Class    Type         Ticker        MUP       FUNDX       HOTFX
1        China        MCHFX /FXI    1.4%      1.1%        2.9%
1        Gold         GLD           2%        2.5%        5.3%
2        Em Mkts      EEM           3%        3.3%        7.5%
2        Mid Cap      BUFMX/DVLIX   2.6%      1.7%        3.6%
2        TCW select   TGCNX         2.6%      0.7%        4.4%
3        Hussman      HSGFX         9.7%      6.3%        4.9%
3        Oakmk Intl   OAKIX         4.7%      5.1%        4.9%
3        SP500 Eq     RSP           6.8%      6.9%        5.5%
Risk Spectrum (Mutual Funds)
             Concentrated and Leveraged Funds

          Aggressive Growth Funds
  Risk
            Growth Funds

                        Balanced Funds

                 Fixed Income

         Money Market

                 Expected Return
Risk Spectrum (NoLoad Fund*X)
                                      Class 1
                                  Class 2

  Risk                    MUP
                    Class 3


                           Class 4
                    MFIP
              Class 5
         Money Market

                Expected Return
Risk Spectrum (Upgrader Funds)
                                    STOCX
                           HOTFX/UNBOX

         TACTX         FUNDX/REMIX
  Risk
                   RELAX




          INCMX

                  Expected Return
Upgrading Applied to ETFs
         Decisions
                              Tempting, but most
               Time
                              investors lack the
                              tools, discipline and
                              knowledge



Manage    Risk (Volatility)         Accept




                              Often leads to
               Avoid
                              disappointment…
                              many “timers” are
                              really “avoiders”
   What do we mean by “Tactical”
Fully Invested    Fully “Hedged”
          Popular Timing Models
•   Moving Averages
•   Stop Losses
•   Valuations
•   Rebalancing
•   Don’t Fight the Fed
•   Gut Feelings
A Weight of the Evidence Approach
    Quantifiable Measures of Market Environment



                                                  Sentiment
                                                  Valuation
                                                  Participation
                                                  Environment
                                                  Divergences
         Examples of Key Factors
•   Expanding or Contracting Money Supply
•   Valuations (Relative to Normal Earnings)
•   Number of New Highs Vs. New Lows
•   Volume in Advances Vs. Declines
•   Bond Yields Vs. Earnings Yield or Dividends
•   Percentage of Industries in Uptrend
•   Sentiment
              Composite Model
•   10 models, equally weighted
•   +1 = buy, 0 = neutral, -1=sell
•   If net score -1 or lower, hedge
•   If net score >+2, fully invested
          Pros and Cons of Timing
Pros                             Cons
• Allows opportunity to          • May be out of synch with a
  participate in market gains      significant advance.
  with a trigger to help avoid   • Requires more frequent
  some declines.                   trading and therefore may
• May improve long-term            incur greater tax liability.
  performance and reduce         • May sell after a decline and
  volatility.                      miss an advance before
                                   getting back in.
     Putting The Pieces Together
• Step 1: Determine a Realistic Asset Allocation
  to Fund Your Goals and Objectives.
• Step 2: Decide What Strategy to Use and If You
  Want to Include a Timing or Tactical Model, or
  Simply Stick to a Static Allocation.
• Step 3: Stick to Your Discipline
Investor Questionnaire

 Step 1:

 Answer five simple questions to determine your
 risk tolerance
Investor Questionnaire
                     Saving for   Child‟s   Retirement
                      a House
Step 2:                           College
                                   Fund


Determine the time
horizon for your
accounts
                   Insights
• Ultimately, you need a long-term strategy you
  believe in, that has the potential to fund your
  long-term goals.
• You also need to be realistic and recognize
  that unexpected events will happen.
• Actions should be based on what works most
  of the time, but you should also have a plan
  for how to handle “unacceptable” loss.
               Tactical Total Return

   Most
Conservative
  Posture




  Most
Aggressive
 Posture
On the Web

NoLoad Fund*X Newsletter:
www.fundx.com
DAL Investment Company:
www.dal-investment.com
FundX Upgrader Funds:
www.fundxfund.com
NoLoad FundX
Article Topic                                Issue
Cash Isn’t Compelling Long Term              January 2009
Select the Right Mix for Recovery            December 2008
Is Rebalancing Necessary?                    December 2008
How Long To Recover?                         November 2008
Focus Forward: Lessons from the last 39      November 2008
Years of Upgrading
Recovery & Repair                            October 2008
Managing Market Volatility                   August 2008
Staying Disciplined in Challenging Markets   July 2008

				
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