DAL Investment DAL Investment Company Company NoLoad NoLoad FundX FundX FundX FundX Upgrader Upgrader Funds Funds Janet Brown Janet Brown
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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
On the WebOn the Web NoLoad FundNoLoad Fund**X NewsletterX Newsletter:: www.fundx.com
DAL Investment CompanyDAL Investment Company:: www.dal-investment.com
FundX Upgrader FundsFundX 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
Years of Upgrading November 2008
Recovery & Repair October 2008
Managing Market Volatility August 2008
Staying Disciplined in Challenging Markets July 2008
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