Sector Selection Methodology

AlphaProfit's sector selection process enables subscribers to invest in winning sectors and lockup gains.

ValuM Investment Process

The AlphaProfit Sector Investors' Newsletter uses AlphaProfit's ValuM investment process for selecting sectors.

The ValuM process evaluates sectors based on their momentum, valuation, and news quality.

Specifically, we seek sectors demonstrating high relative strength while possessing attractive valuation. We also look for sectors with catalysts or favorable fundamentals.

1. The Capital Asset Pricing Model is a set of predictions concerning equilibrium expected returns on risky assets. Alpha is the difference between the expected return of the sector fund and the "fair return" for the fund based on its historical responsiveness to market movements. Beta is a measure of the sector funds's responsiveness to market movements. For a complete description of the Capital Asset Pricing Model as well as terms, alpha and beta, refer "Investments", Z. Bodie, A. Kane, A. J. Marcus, 2nd Edition, 1993.

We believe the ValuM Investment Process enables us to select investments for our model portfolios with high expected values of alpha from the perspective of the Capital Asset Pricing Model or CAPM. High expected alpha implies high expected sector-specific return.

Sector Selection Results

The ValuM investment process has a long and successful history of adding value by identifying leading sectors in both bull and bear markets and locking up gains before stay becomes unwelcome. Some examples follow:

Selects leading sectors in bull markets

30.1% gain with utilities (FSUTX) vs. 15.9% gain for
DJW 5000 in 2006

42.5% gain with wireless (FWRLX) vs. 12.6% gain for DJW 5000 in 2004

132.4% gain with technology (FSPTX) vs. 23.4% gain
for DJW 5000 in 1999

62.3% gain with brokerage (FSLBX) vs. 31.3% gain for DJW 5000 in 1997

Identifies sectors that buck the trend in bear markets

64.3% gain with gold (FSAGX) vs. 20.9% loss for
DJW 5000 in 2002

22.8% gain with auto (FSAVX) vs. 11.0% loss for
DJW 5000 in 2001

71.3% gain with oil & gas E & P (FSNGX) vs. 10.9%
loss for DJW 5000 in 2000

Times exits to lock gains

Lock 11.5% relative gain* from oil & gas E & S
(FSESX) in 1H2006 and avert 17.5% relative loss*
in 2H2006

Lock 22.7% relative gain from health care providers
(FSHCX) in 2005 and avert 17.5% relative loss in 2006

Lock 81.9% relative gain from oil & gas E & P
(FSNGX) in 2000 and avert 11.9% relative loss in 2001

Lock 108.9% relative gain from technology (FSPTX) in
1999 and avert 21.6% relative loss in 2000

Lock 20.6% relative gain from oil & gas E & S (FSESX)
in 1997 and avert 73.1% relative loss in 1998

* Relative gain and loss is calculated by subtracting the DJW 5000's return from the fund's return

ValuM Investment Process History

Sam Subramanian, founder of AlphaProfit Investments developed the ValuM Investment Process to evaluate sectors and industries in the 1990s. He applies this process to invest his personal assets in several Fidelity Select funds and sector ETFs since then.

See: Model Portfolio Description
Real-time Model Portfolio Performance

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