Mutual Fund Selection and Investment Approach

Our model portfolios are constructed from sector mutual funds using the ValuM Investment Process. The model portfolios seek long-term wealth creation.

Mutual Funds Selected using ValuM™ Investment Process

We employ the proprietary ValuM Investment Process to identify sectors for investment. The ValuM process evaluates sectors based on their momentum, valuation, and news quality. The process seeks three characteristics in sector funds: Relative strength, attractive valuation, and favorable fundamentals or catalysts.

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 mutual funds 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.

Long-Term Wealth Creation Objective

We endeavor to help Subscribers create wealth through compounding of strong long-term returns. We seek capital appreciation in our investment approach; dividend income is secondary. Our model portfolios are usually fully invested in equity mutual funds and avoid market timing. Our periodic portfolio repositioning decisions are designed to maximize long-term after-tax returns.

Portfolio Approach to Investing with Sector Funds

We take a portfolio approach to investing with sector mutual funds to leverage their potential while mitigating risk. We construct two actionable model portfolios: AlphaProfit Core™ Portfolio and AlphaProfit Focus™ Portfolio.

Our objective is to keep the model portfolios fully invested in Fidelity sector or index mutual funds at all times. If the market environment results in fewer than optimal number of Fidelity sector funds with high expected sector-specific return, a portion of the AlphaProfit Core model portfolio may be allocated to the Fidelity Spartan® 500 Index Fund or the Fidelity Spartan® Total Market Index Fund. Index funds are not included in the AlphaProfit Focus model portfolio.

Our holding duration for sector mutual funds is typically 6 months or longer. Our exchange decisions seek to optimize a confluence of factors including providing adequate time for our investment thesis to play out, capitalizing on opportunities in sector funds currently not included in the model portfolios, and maintaining a level of tax efficiency.

See: Model Portfolio Description
Long Term Historical Track Record
Performance and Report Highlights
Mutual Fund Rating Track Record

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