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We attempt to take advantage of changing market leadership because we believe that will lead to long-term growth. Market changes are only truly clear in hindsight, so we can now look back at 2012 and identify some major market leadership trends and changes that occurred in the last 12 months.
Domestic U.S. markets have been in favor for the past few years. The U.S. equity market was a stand-out in 2011, a year in which many of the world’s stock markets plunged. This trend continued through the first half of 2012. U.S. markets, as measured by the S&P 500, strongly outperformed foreign indexes like the EAFE (Europe Australasia and Far East) index. This led us to invest the FundX Upgrader Fund portfolios primarily in domestic U.S. funds.
In the U.S. market, large-cap growth stocks, like those in the S&P 500, were in favor for part of the year. Dividend-paying stocks, like those in the Dow Jones U.S. Select Dividend Index, were also in favor for part of the year. Many investors turned to such stocks in hopes that they might provide a source of income at a time when bond yields were at historically low levels. Dividend-paying stock also tend to be more defensive and have often held up better during volatile periods in the markets like the spring 2012 sell-off.
The third quarter of 2012 marked a turning point, as market leadership shifted from the U.S. to foreign. Previously beaten-down European markets rallied in the third and fourth quarters and began to outperform domestic U.S. markets.
The FundX Upgrader Funds nimbly adapted to 2012’s changing leadership. As the foreign trend persisted, we replaced some of the domestic large-cap growth and dividend funds in the FundX Upgrader Fund portfolios and purchased our first foreign funds and ETFs in nearly 18 months. By the end of the year, all of the equity FundX Upgrader Funds had substantial exposure to international funds.
We believe one of the advantages of our go-anywhere global strategy is that we aren’t limited to one area of the market or one geographic region. The FundX Upgrader Funds portfolios are flexible: we steered clear of foreign funds while foreign markets lagged, and now we seek to benefit from foreign funds by holding them while foreign markets lead.
All foreign returns are from MSCI single country indexes and are denominated in U.S. dollars. To construct a country index, MSCI identifies every listed security in the market. Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard (GICS(r)), and screened by size, liquidity and minimum free float. The U.S. is measured by the S&P 500. You cannot invest in an index. The MSCI Australia Index is free float-adjusted, market capitalization that is designed to measure the performance of the large and mid cap segments of the Australia market. The MSCI Brazil Index is a freefloat-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of the Brazilian market. The MSCI Canada Index is a free float-adjusted, market capitalization index designed to measure the performance of the large and mid cap segments of the Canada market. The MSCI China Index is designed to measure the performance of the top 85% of the securities by market capitalization in the Chinese equity markets. The MSCI France Index is a capitalization-weighted index that seeks the measure the performance of the France equity market. The MSCI Germany Index is a capitalization-weighted index that seeks to measure the performance of the Germany equity market. The MSCI India Index is a free float-adjusted, market capitalization index designed to measure the market performance of the India market. The MSCI Japan Index is a free float-adjusted, market capitalization index designed to measure the perfor- mance of the large and mid cap segments of the Japan market. The MSCI Mexico Investable Market Index is a capitalization-weighted index that measures the performance of the Mexican equity market. The MSCI Russia Index is a free-float adjusted, market capitalization weighted index that is designed to measure the Russian equity market. The MSCI UK Index is a capitalization-weighted index that seeks to measure the performance of the British equity market. The MSCI South Africa Index is a capitalization-weighted index that seeks to measure the performance of the South African equity market. Past performance does not guarantee future results.
The MSCI EAFE Index (Morgan Stanley Capital International, Europe, AustralAsia and Far East) is an unmanaged index of over 1000 foreign common stock prices including the reinvestment of dividends.The Dow Jones Dividend Indices represents 100 top dividend-paying stocks in the US weighted by indicated annual dividend. Index performance is not indicative of fund performance. To obtain standardized fund performance click here or call 866-455-3863.