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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

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DAL Investment Company

NoLoad FundX

FundX Upgrader Funds

Janet Brown


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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

  • Manager of FundX Upgrader Funds since 2001 – $850 million

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

While the funds are no-load, management fees and other expenses still apply. Please refer to the prospectus for further details.


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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




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What is Upgrading ?

  • Why Upgrading Works

  • Current Performance is Key

  • Many Ways to Upgrade

  • Common Objections


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Upgrading

An effective, disciplined response to changing market conditions.


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15.2%

Upgrading

Stocks

Average Equity Investor

Inflation

As measured by the S&P 500 Index1

20 Year Performance

(Average Annual Returns 1987 – July 2008)

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.



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Stay with the Winners

  • Invest in the funds currently leading the market.

  • Stay with the winners and Upgrade the laggards.



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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.


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Rotation of Market Leadership

  • Value and Growth investment styles

  • Small cap and Large cap

  • International and Domestic






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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.


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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



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Upgrading vs Buy and Hold

2000 through 2008




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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!





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2008: Life on the Left Tail

Calendar Year Stock Returns

(1825-2008)

Source: Robert Shiller, FMRCo (MARE) as of 12/31/2008.



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Basic Choices

Assets

Stocks

Commodities

Real Estate

Debt

Bonds

Preferred Stocks

Cash


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Average Annual Return

Ending Value

S&P 500

9.6%

$2,023.72

Bonds

5.5%

$83.81

Cash

3.7%

$20.50

U.S. Inflation

3.1%

$12.17

Investing in Cash Not A Compelling Long-Term Strategy

Value of $1 Invested

(1925-2008)

2008

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.)


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What We Know

  • Limited Investment Options

  • Current Yields of Bonds and Cash

  • Recent Stock Market Returns

  • Current Stock Valuations



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What We Don’t Know

  • Future Inflation

  • When Interest Rates will Go Up

  • Will the Stock Market Bottom?

    • - When and at What Level





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Allocation Changes Over Time

Years

1-2

Years

3-7

Years

8-12

Years

13-17

Years

18-25

Year 1

Year 25

Cash

Bonds

Stocks


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Allocation Changes Over Time

2032-2034

2024

2014

2009

2034

2034

2034

2030

2034

50% 30% 20%

8% 24% 68%

10% 30% 60%

20% 42% 38%

100% 0% 0%

Cash

Bonds

Stocks


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Risk Classification and Portfolio Construction /Management

Current High Ranking Funds

Portfolio Weight


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Risk Spectrum (Mutual Funds)

Concentrated and Leveraged Funds

Aggressive Growth Funds

Risk

Growth Funds

Balanced Funds

Fixed Income

Money Market

Expected Return


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Risk Spectrum (NoLoad Fund*X)

Class 1

Class 2

Risk

MUP

Class 3

Class 4

MFIP

Class 5

Money Market

Expected Return


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Risk Spectrum (Upgrader Funds)

STOCX

HOTFX/UNBOX

TACTX

FUNDX/REMIX

Risk

RELAX

INCMX

Expected Return



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Decisions

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

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


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What do we mean by “Tactical”

Fully Invested

Fully “Hedged”


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Popular Timing Models

  • Moving Averages

  • Stop Losses

  • Valuations

  • Rebalancing

  • Don’t Fight the Fed

  • Gut Feelings



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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


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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


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Pros and Cons of Timing

Pros

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.

  • Allows opportunity to participate in market gains with a trigger to help avoid some declines.

  • May improve long-term performance and reduce volatility.


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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


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Investor Questionnaire

Step 1: Answer five simple questions to determine your risk tolerance


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Saving for a House

Child’s College Fund

Retirement

Investor Questionnaire

Step 2: Determine the time horizon for your accounts


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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.


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Tactical Total Return

Most Conservative

Posture

Most

Aggressive

Posture


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On the Web

NoLoad Fund*X Newsletter:

www.fundx.com

DAL Investment Company:

www.dal-investment.com

FundX Upgrader Funds:

www.fundxfund.com



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