DAL Investment Company No Load Fund X Upgrader
- Slides: 63
DAL Investment Company No. Load Fund. X Upgrader Funds Janet Brown
DAL Investment Company u Money Management since 1969 – $2 million minimum $1. 3 Billion aggregate assets under management. u No. Load Fund. X Newsletter since 1976 – 13, 000 subscribers DAL’s proprietary newsletter composed of hypothetical portfolios of investments chosen using the Upgrading strategy. u Manager of Fund. X 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) Stocks As measured by the S&P 500 Index 1 Average Equity Investor Inflation 15. 2% Upgrading 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 u Don’t Forecast. Accept the market’s trends whether or not we understand the reasons for these trends. u Realize the market will change. Stay alert in order to recognize changes in the market environment. u 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 Portfolio 40. 41% 3. 84% 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 Calendar Year Stock Returns (1825 -2008) 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) Ending Value 9. 6% 5. 5% 3. 7% $2, 023. 72 $83. 81 $20. 50 3. 1% $12. 17 2008 S&P 500 Bonds Cash U. S. Inflation Average Annual Return 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&P 500 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 Mean 50. 00% Stocks -50. 00% -100. 00% Bonds Cash Inflation
10 Year Investment (1925 -2008) 700. 00% 600. 00% 500. 00% 400. 00% Maximum Minimum Mean 300. 00% 200. 00% 100. 00% Stocks -100. 00% Bonds Cash Inflation
20 Year Investment (1925 -2008) 3000. 00% 2500. 00% 2000. 00% Maximum 1500. 00% Minimum Mean 1000. 00% 500. 00% Stocks Bonds Cash Inflation
Allocation Changes Over Time Year 1 Years 1 -2 Year 25 Years 3 -7 Years 8 -12 Cash Years 13 -17 Bonds Years 18 -25 Stocks
Allocation Changes Over Time 2009 2014 2024 2032 -2034 2030 2034 10% 20% 50% 100% 8% 2034 24% 42% 30% 0% Cash 68% 60% 38% 20% 0% Bonds Stocks 2034
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 SP 500 Eq RSP 6. 8% 6. 9% 5. 5%
Risk Spectrum (Mutual Funds) Concentrated and Leveraged Funds Risk Aggressive Growth Funds Balanced Funds Fixed Income Money Market Expected Return
Risk Spectrum (No. Load 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 Risk TACTX FUNDX/REMIX RELAX INCMX Expected Return
Upgrading Applied to ETFs
Decisions Time Manage Tempting, but most investors lack the tools, discipline and knowledge Risk (Volatility) Accept Avoid Often leads to 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
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 participate in market gains with a trigger to help avoid some declines. • May improve long-term performance and reduce volatility. • May be out of synch with a significant advance. • Requires more frequent trading and therefore may incur greater tax liability. • May sell after a decline and 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 Step 2: Determine the time horizon for your accounts Saving for a House Child’s College Fund Retirement
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 No. Load Fund*X Newsletter: www. fundx. com DAL Investment Company: www. dal-investment. com Fund. X Upgrader Funds: www. fundxfund. com
No. Load Fund. X Article Topic Cash Isn’t Compelling Long Term Select the Right Mix for Recovery Is Rebalancing Necessary? How Long To Recover? Focus Forward: Lessons from the last 39 Years of Upgrading Issue January 2009 December 2008 November 2008 Recovery & Repair Managing Market Volatility Staying Disciplined in Challenging Markets October 2008 August 2008 July 2008
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