Company Company NoLoad FundX FundX NoLoad FundX Upgrader - - PowerPoint PPT Presentation

DAL Investment DAL Investment Company Company NoLoad NoLoad FundX FundX FundX FundX Upgrader Upgrader Funds Funds Janet Brown Janet Brown

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

While the funds are no-load, management fees and other expenses still apply. Please refer to the prospectus for further details. DAL’s proprietary newsletter composed of hypothetical portfolios of investments chosen using the Upgrading strategy.

DAL Investment Company

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.

11.8% 4.5% 3.0%

As measured by the S&P 500 Index

• 15.2%

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.

(Average Annual Returns 1987 – July 2008)

20 Year Performance

How Upgrading Works

Invest in the funds currently leading the market. Stay with the winners and Upgrade the laggards.

Stay with the Winners

10 Year Performance

Managers Don’t Change. Markets Do.

Why Upgrading Works

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

• r 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,

• ften longer
• Usually lower turnover

Yearly Performance Record

Upgrading vs Buy and Hold

Cumulative Annualized Monthly Upgrader Portfolio 40.41% 3.84% Russell 2000 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%

2000 through 2008

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
• ver 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

2007 2005 1994 2006 1993 2004 1987 1992 1984 1988 1978 1982 1970 1979 1956 1971 1953 1968 1948 1965 1947 1964 1939 1959 2000 1923 1952 1990 1916 1949 2003 1981 1912 1944 1999 1977 1911 1942 1998 1966 1906 1938 1996 1962 1902 1926 1991 1960 1896 1921 1986 1957 1895 1919 1983 1946 1894 1909 1980 1940 1892 1905 1976 1934 1889 1900 1972 1929 1888 1899 1967 2001 1914 1882 1897 1963 1973 1913 1881 1886 1961 1969 1910 1875 1878 1951 1997 1941 1890 1871 1874 1950 1995 1932 1887 1870 1872 1943 1989 1920 1883 1869 1864 1925 1985 1903 1877 1867 1858 1924 1975 1893 1873 1866 1855 1922 1958 1884 1861 1865 1850 1918 1955 2002 1876 1860 1859 1849 1901 1945 1974 1854 1853 1856 1848 1898 1936 1954 1930 1841 1851 1844 1847 1891 1928 1935 1917 1837 1845 1842 1838 1885 1927 1908 1907 1831 1835 1840 1834 1880 1915 1879 2008 1857 1828 1833 1836 1832 1852 1904 1863 1933 1931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862 50% 40% 30% 20% 10% 0%

• 10%
• 20%
• 30%
• 40%
• 50%

60%

2008: Life on the Left Tail

Calendar Year Stock Returns

(1825-2008)

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

Recovery Times

Basic Choices

• Assets
• Stocks
• Commodities
• Real Estate
• Debt
• Bonds
• Preferred Stocks
• Cash

Investing in Cash Not A Compelling Long-Term Strategy

$0 $1 $10 $100 $1,000 $10,000 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 S&P 500 Bonds Cash U.S. Inflation

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.)

$12.17 3.1% U.S. Inflation $20.50 3.7% Cash $83.81 5.5% Bonds $2,023.72 9.6% S&P 500

Ending Value Average Annual Return

Value of $1 Invested

(1925-2008)

2008

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)

10 Year Investment (1925-2008)

20 Year Investment (1925-2008)

Allocation Changes Over Time

Cash Bonds Stocks Year 1 Year 25

Years

1-2 Years 3-7 Years 8-12 Years 13-17 Years 18-25

Allocation Changes Over Time

Cash Bonds Stocks 2034 2009 2034 2014 2034 2024 2034 2030 2032-2034 8% 24% 68% 10% 30% 60% 20% 42% 38% 50% 30% 20% 100% 0% 0%

Risk Classification and Portfolio Construction /Management

Current High Ranking Funds

Class Type Ticker 1 China MCHFX /FXI 1 Gold GLD 2 Em Mkts EEM 2 Mid Cap

BUFMX/DVLIX

2

TCW select

TGCNX 3 Hussman HSGFX 3 Oakmk Intl OAKIX 3 SP500 Eq RSP

Portfolio Weight

MUP FUNDX HOTFX 1.4% 1.1% 2.9% 2% 2.5% 5.3% 3% 3.3% 7.5% 2.6% 1.7% 3.6% 2.6% 0.7% 4.4% 9.7% 6.3% 4.9% 4.7% 5.1% 4.9% 6.8% 6.9% 5.5%

Risk

Expected Return Money Market

Risk Spectrum (Mutual Funds)

Growth Funds Balanced Funds Fixed Income Concentrated and Leveraged Funds Aggressive Growth Funds

Risk

Expected Return Money Market

Risk Spectrum (NoLoad Fund*X)

MUP Class 3 Class 4 Class 1 Class 2 MFIP Class 5

Risk

Expected Return HOTFX/UNBOX FUNDX/REMIX RELAX INCMX

Risk Spectrum (Upgrader Funds)

TACTX STOCX

Upgrading Applied to ETFs

Decisions

Manage Avoid Accept

Time

Risk (Volatility)

Often leads to disappointment… many “timers” are really “avoiders” Tempting, but most investors lack the tools, discipline and knowledge

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
• f 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 On the Web

NoLoad Fund NoLoad Fund* *X Newsletter X Newsletter: : www.fundx.com DAL Investment Company DAL Investment Company: : www.dal-investment.com FundX Upgrader Funds FundX Upgrader Funds: : www.fundxfund.com

NoLoad FundX

Article Topic Issue Cash Isn’t Compelling Long Term January 2009 Select the Right Mix for Recovery December 2008 Is Rebalancing Necessary? December 2008 How Long To Recover? November 2008 Focus Forward: Lessons from the last 39 Years of Upgrading November 2008 Recovery & Repair October 2008 Managing Market Volatility August 2008 Staying Disciplined in Challenging Markets July 2008