Transcript Slide 1

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
As measured by the S&P
500 Index1
Average
Equity
Investor
Inflation
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
 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
40.41%
3.84%
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%
Monthly Upgrader
Portfolio
Russell 2000
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
1993
1987
1984
1978
1970
1956
1953
1948
1947
1939
1923
1916
1912
1911
1906
1902
1896
1895
1894
1892
1889
1888
1882
1881
1875
1871
1870
1869
1867
1866
1865
1859
1856
1844
1842
1840
1836
1826
Calendar Year Stock Returns
(1825-2008)
-50%
-40%
2001
1973
1969
1941
1932
1920
1903
1893
1884
1876
1854
1841
1837
1831
1828
1825
2002
1974
1930
1917
1907
1857
1839
2008
1937
1931
-30%
Source: Robert Shiller, FMRCo (MARE) as of 12/31/2008.
2000
1990
1981
1977
1966
1962
1960
1957
1946
1940
1934
1929
1914
1913
1910
1890
1887
1883
1877
1873
1861
1860
1853
1851
1845
1835
1833
1827
-20%
-10%
0%
2006
2004
1992
1988
1982
1979
1971
1968
1965
1964
1959
1952
1949
1944
1942
1938
1926
1921
1919
1909
1905
1900
1899
1897
1886
1878
1874
1872
1864
1858
1855
1850
1849
1848
1847
1838
1834
1832
1829
10%
2003
1999
1998
1996
1991
1986
1983
1980
1976
1972
1967
1963
1961
1951
1950
1943
1925
1924
1922
1918
1901
1898
1891
1885
1880
1852
1846
20%
1997
1995
1989
1985
1975
1958
1955
1945
1936
1928
1927
1915
1904
1830
30%
1954
1935
1908
1879
1863
1843
40%
1933
1862
50%
60%
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
Bonds
Cash
U.S. Inflation
$1,000
S&P 500
Bonds
Cash
U.S.
Inflation
$100
Average
Annual
Return
Ending
Value
9.6%
5.5%
3.7%
$2,023.72
$83.81
$20.50
3.1%
$12.17
$10
$1
2008
2005
2001
1997
1993
1989
1985
1981
1977
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
1925
$0
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
Mean
50.00%
0.00%
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%
0.00%
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%
0.00%
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
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
SP500 Eq
RSP
6.8%
6.9%
5.5%
Risk Spectrum (Mutual Funds)
Concentrated and Leveraged Funds
Risk
Aggressive Growth Funds
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
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
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 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
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
Recovery & Repair
Managing Market Volatility
Staying Disciplined in Challenging Markets
Issue
January 2009
December 2008
December 2008
November 2008
November 2008
October 2008
August 2008
July 2008