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The past ten years were challenging years for most equity investors. When we started FUNDX in fall 2001, it was a difficult time to launch a new mutual fund. After a decade of historic economic growth, the economy had begun to soften in the summer of 2001. Fear and uncertainty reigned after September 11th and investors bailed out of equities.
But FUNDX persevered through wars, natural disasters, the housing boom and bust, and the Great Recession, as shown below. While many consider the last ten years a ‘lost decade’, FUNDX has performed admirably since its November 1, 2001 inception through September 30, 2011.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance current to the most recent month end may be obtained by calling 866-455-3863 or visiting our Performance page. Performance data shown does not reflect the 2.00% redemption fee imposed on shares redeemed within 30 days. If it did, total returns would be reduced.
The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index.
Changing Mutual Fund Landscape
The mutual fund landscape changed tremendously over the last decade. After allegations of improper trading by big mutual fund families the SEC began requiring clearly defined policies on short-term trading and market timing, resulting in new trading restrictions and short-term redemption fees. Investors who violated a fund’s policy could be banned from future purchases.
New trading restrictions didn’t hamper our ability to manage the FundX Upgrader Fund (FUNDX). FUNDX beat its benchmark S&P 500 for six out of nine calendar years (see Yearly Total Returns, page 15) and for the nearly ten year period is up 59% compared to 29% for the broad market.
FUNDX was the first FundX Upgrading portfolio to use exchange traded funds, or ETFs. ETFs became much more prominent in the last decade. In 2001, there were fewer than 100 ETFs on the market; today there are over 900 ETFs to choose from.
FUNDX Adapted to Portfolio Changes
The goal of our Upgrading strategy is to align with changing market leadership. FUNDX responded to many changes in the last decade.
In 2000 and 2001, leadership shifted from growth to value styles of investing and from large-cap to small-cap stocks. By the time we started in late 2001, highly ranked funds were primarily small-cap value and our largest holding was iShares Russell 2000 Value.
International funds, especially emerging markets, rose up the performance ranks from 2003 through 2007 and FUNDX gradually increased exposure to international funds. In 2003, 32% of the portfolio was invested outside the U.S; by spring 2007, 82% of the portfolio was invested in foreign funds and emerging markets.
After the financial crisis in 2008 FUNDX held more defensive funds, such as funds that were partly hedged or that held significant cash. Then, as the market recovered in 2009, the portfolio shifted to include mid-cap value funds, both domestic and foreign, and some emerging markets funds.
The past few years have been challenging as asset classes have become more correlated and distinct leadership elusive. The portfolio as of September 30, 2011 is primarily invested domestically, with a mix of high dividend paying funds and growth funds.