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The Flexible Income strategy we use to manage the FundX Flexible Income Fund (INCMX) seeks consistent, low volatility returns.
We believe there are several key factors that differentiate our Flexible Income strategy from traditional fixed income strategies: the tools we use to position our Flexible Income portfolios, our portfolio selection process and risk management, and our strategy that adapts to changing markets.
Most bond mutual funds invest in individual bonds. The FundX Flexible Income Fund (INCMX) invests in mutual funds and exchange traded funds (ETFs) because funds and ETFs offer what we believe is the most efficient way to adapt as market leadership changes.
Some fixed income strategies focus on just one area of the bond market, but our Flexible Income approach can invest in many different kinds of fixed income funds and ETFs, including corporate and government, higher quality and lower quality, shorter-term and longer-term, and foreign and domestic bond funds and ETFs.
Our Flexible income strategy may invest beyond the boundaries of traditional fixed income. It may also hold total-return oriented funds like balanced funds, merger funds, preferred stock and convertible bond funds, and other potentially low volatility alternatives to bond funds. We believe this offers diversification from some of the limitations of traditional bond funds.
Many fixed income strategies focus on relative performance to a benchmark. We also attempt to earn a positive return regardless of changes in the direction of interest rates or credit conditions, and we are equally focused on limiting drawdowns.
The Flexible Income strategy we use to select diversified portfolios of primarily fixed income funds applies the same principles as our equity Upgrading strategy: we sort fixed income funds into risk categories, separating high yield bonds from short-term bonds, and within each risk category, we seek the best performers (as measured by our performance based ranking system).
Our Flexible Income strategy includes important features in an effort to help control risk. We limit exposure to riskier bond funds, such as high yield funds, global and world bond funds, emerging market bond funds and even intermediate-term bond funds. The only unlimited bond fund category is also what we believe carries the least amount of risk: short-term bond funds. We will substantially limit upside potential for a limited period of time in order to attempt to preserve principal in a volatile or hostile environment.
The Flexible Income strategy seeks to align the FundX Flexible Income portfolios with current bond market leadership and change the portfolio as bond market leadership changes.
Fixed income markets, like stock markets, change over time. Bond market leadership rotates as interest rates rise and fall, as bonds with higher or lower credit quality gain market favor, and as global currencies fluctuate.
The Flexible Income strategy leads us to adapt to changing bond market leadership. Our Flexible Income portfolios don’t have any static allocations; instead we flexibly change our allocations to can take advantage of strength in high yields, global bonds and even emerging market bonds. In more volatile periods in the bond market, such as 2008, we can increase exposure to short-term bonds, which have tended to remain fairly stable. We also have the option of investing in low-volatility equity funds which aren’t as correlated to the bond market.
Being flexible and actively adapting to changing bond markets allows us to pursue a broad spectrum of opportunities while attempting to maintain our commitment to limited risk.
Due to its diversification, risk management and flexible strategy, we believe INCMX is ideal as a core component of an investor’s fixed income allocation.
Diversification does not assure a profit or protect against a loss in a declining market.