DAL Investment Company NoLoad FundX FundX …2009-06-20).pdf2009/06/20  · NoLoad FundX Newsletter since 1976 – 13,000 subscribers Manager of FundX Upgrader Funds since 2001 –

DAL Investment DAL Investment

CompanyCompany

NoLoadNoLoad FundXFundX

FundXFundX UpgraderUpgrader FundsFunds

Janet BrownJanet Brown

� Money Management since 1969 – $2 million minimum $1.3 Billion aggregate assets under management.

� NoLoad FundX Newsletter since 1976 – 13,000 subscribers

� 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.

DAL’s proprietary newsletter composed of hypothetical portfolios of investments chosen using the Upgrading strategy.

DAL Investment Company

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.

11.8%

4.5%3.0%

As measured by the S&P 500 Index1

Upgrading Stocks Average

Equity

Investor

Inflation

15.2%

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.

(Average Annual Returns 1987 – July 2008)

20 Year Performance

How Upgrading Works

� Invest in the funds currently leading the market.

� Stay with the winners and Upgrade the laggards.

Stay with the Winners

10 Year Performance

Managers Don’t Change. Markets Do.

Why Upgrading Works

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

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%

2000 through 2008

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

2007

2005

1994 2006

1993 2004

1987 1992

1984 1988

1978 1982

1970 1979

1956 1971

1953 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 19081907 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%

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

$0

$1

$10

$100

$1,000

$10,000

1925

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

S&P 500

Bonds

Cash

U.S. Inflation

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.)

$12.17 3.1% U.S. Inflation

$20.50 3.7% Cash

$83.81 5.5% Bonds

$2,023.72 9.6% S&P 500

Ending Value

Average Annual Return

Value of $1 Invested (1925-2008)

2008

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)

10 Year Investment (1925-2008)

20 Year Investment (1925-2008)

Allocation Changes Over Time

Cash Bonds Stocks

Year 1 Year 25

Years

1-2 Years

3-7 Years 8-12

Years 13-17

Years 18-25

Allocation Changes Over Time

Cash Bonds Stocks

2034 2009 2034 2014 2034 2024 2034 2030 2032-2034

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

Risk Classification and Portfolio

Construction /Management

Current High Ranking Funds

Class Type Ticker

1 China MCHFX /FXI

1 Gold GLD

2 Em Mkts EEM

2 Mid Cap BUFMX/DVLIX

2 TCW select TGCNX

3 Hussman HSGFX

3 Oakmk Intl OAKIX

3 SP500 Eq RSP

Portfolio Weight

MUP FUNDX HOTFX

1.4% 1.1% 2.9%

2% 2.5% 5.3%

3% 3.3% 7.5%

2.6% 1.7% 3.6%

2.6% 0.7% 4.4%

9.7% 6.3% 4.9%

4.7% 5.1% 4.9%

6.8% 6.9% 5.5%

Risk

Expected Return

Money Market

Risk Spectrum (Mutual Funds)

Growth Funds

Balanced Funds

Fixed Income

Concentrated and Leveraged Funds

Aggressive Growth Funds

Risk

Expected Return

Money Market

Risk Spectrum (NoLoad Fund*X)

MUP

Class 3

Class 4

Class 1

Class 2

MFIP

Class 5

Risk

Expected Return

HOTFX/UNBOX

FUNDX/REMIX

RELAX

INCMX

Risk Spectrum (Upgrader Funds)

TACTX

STOCX

Upgrading Applied to ETFs

Decisions

Manage

Avoid

Accept

Time

Risk (Volatility)

Often leads to disappointment… many “timers” are really “avoiders”

Tempting, but most investors lack the tools, discipline and knowledge

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

• Allows opportunity to

participate in market gains

with a trigger to help avoid

some declines.

• May improve long-term

performance and reduce

volatility.

Cons

• 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

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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

Years of Upgrading November 2008

Recovery & Repair October 2008

Managing Market Volatility August 2008

Staying Disciplined in Challenging Markets July 2008