No-Load Fund Analyst's Model Portfolios and Investment Approach

SUMMARY:
We believe markets are usually, but not always rational.
We are long-term investors who focus on value.
We combine detailed data analysis with judgment and intuition.
Asset allocation drives our portfolio strategy, but fund selection plays an important supporting role in executing our strategy.
Investment management is as much art as science. But we believe a consistently executed and well-defined discipline increases the probability of investment success.
We use diversification to control risk—a critical part of our process.
We offer model portfolios for four different levels of risk tolerance.

ortfolio management is a blend of art and science. Past performance is useful. But just picking the funds that performed best in the past is not a good way to build a portfolio for the future. That’s why our portfolios reflect a well thought out and disciplined approach to both asset allocation and fund selection. Asset allocation is the first step in the portfolio process. Fund selection is second. In both asset class and fund selection, we seek to balance risk and opportunity to achieve long-term investment goals. This article discusses:

• the characteristics of our model portfolios
• what to consider in choosing a model to follow
• our asset allocation discipline
• how we choose funds and implement the model portfolios

The discussion applies to all our model portfolios, except that fund minimums constrain the fund choices available to investors with smaller portfolios.

The NLFA Model Portfolios
The No-Load Fund Analyst offers four model portfolio types, each targeting a different level of downside risk and potential reward. Each of the four portfolios published in the No-Load Fund Analyst are managed without consideration for tax impact. However, funds that we think would be inappropriate for taxable investors are flagged, and tax-efficient alternatives are provided. Alternative choices with lower investment minimums are also provided for the benefit of investors with smaller portfolios who may not be able to meet the minimum investment requirements of funds used in the models. All of our portfolios include foreign as well as U.S. stock funds.

Here is a description of our four portfolio types:

Conservative Balanced: This is our most conservative portfolio. Our risk target is not to exceed a 5% loss in any 12-month period. For these portfolios, we err on the side of conservatism. To limit risk in this portfolio, our target “neutral” allocation for equities (the highest-risk asset class) is 40%. (More on “neutral” allocations later, but basically this is the “default” allocation we would have if we were making long-term, fixed allocations.) This portfolio is most appropriate for investors who are uncomfortable with short-term risk and value short-term capital preservation over higher long-term returns.

Balanced: Our objective for this portfolio is to limit losses to no more 10% in any 12-month period. The higher downside risk threshold allows us to have more equity exposure than in our conservative balanced portfolio (a 60% neutral allocation to equities), while remaining relatively conservative. A similarly, we will tend to err on the side of conservatism in managing the balanced portfolio. This portfolio is appropriate for investors who want to participate in the equity markets, but are still somewhat uncomfortable with short-term risk.

Equity-Tilted Balanced: We manage this portfolio to limit maximum 12-month losses to 15%. This is a more aggressive portfolio—a 75% neutral allocation to equities. This portfolio is appropriate for investors who are willing to accept higher short-term risk in exchange for the likelihood of above-average long-term returns.

Equity: This portfolio is, as a rule, a fully invested, global stock portfolio. Consequently the ups and downs of the portfolio’s returns will be as wide as the equity markets.’ It’s possible that investors could lose 20% or more of their value over 12 months (though we expect this to be rare). In the last major bear market, 1973 and 1974, U.S. stocks declined almost 50%. Along with higher risk, we expect higher long-term returns. This portfolios is appropriate for investors with a long time horizon and no concerns about short-term risk. Since the inception of the NLFA in 1989 we have not violated any of our models’ risk thresholds. During most of this period we’ve been in a bull market, so it is fair to say the models have not been tested in a major bear market (though we did experience a cyclical bear market in 1990). While our objective is not to exceed our risk threshold targets, there is no guarantee that we will do so.

Getting Started and Implementing Changes

We suggest new investors invest bit-by-bit over at least six months. (This is called dollar-cost averaging—a descriptive name because your dollars will be invested over time at various prices and your cost will be an average over the time it takes you to get invested.) This eliminates the risk of investing all your money at a market peak, though it can reduce returns if markets steadily advance while you are getting invested.

Because the funds in your portfolio will not all go up and down together, your portfolio’s asset allocation will change gradually. Those funds that do well will become a larger percentage of your portfolio, while those that do poorly will become a smaller percentage. It is not necessary to keep your percentage allocations exactly equal to our model portfolios. But, every six months you should review your allocations. Small positions may be okay if they are off by 50%. (For example, if a 2% position becomes a 3% position, it’s probably okay.) Larger positions should not vary by much more than 20% from their targets. (For example, a 20% position should be adjusted if it hits 24%.) These are ballpark estimates, not precise rules. Also, if adjusting allocations means selling funds (rather than strategically adding new money) and you are a taxable investor, you should consider the tax consequences.

Tracking Your Portfolio Returns

We provide monthly, year-to-date, annual, and cumulative total return calculations for all of our portfolios. Monthly returns assume monthly re-balancing and making the suggested transactions at the end of the prior month. The year-to-date, annual, and cumulative total returns also assume transactions at the end of the prior month, but re-balancing only at the beginning of each year. The actual timing of your transactions (due to the mailing lag) will not match our assumptions, so your returns won’t match exactly either. But because we are not market timers, your long-term returns should not be materially different.

Successful Investing Using Our Model Portfolios

Your success as an investor will be largely influenced by:

• Your understanding of basic investment concepts.
• Setting reasonable objectives so that you can choose the model that is right for you.
  
• Your discipline in following the models and making your own investment decisions.

Key Concepts to Keep in Mind

Some of these concepts are basic, others are more complicated, but they’re all important.

• Start with reasonable return expectations that are also compatible with your risk. (See our article on long-term investing.)
  
• Think of your whole portfolio, rather than its individual pieces. It’s hard not to focus on the poorer performing funds in your portfolio, but if you are broadly diversified, there will always be some “losers” in your portfolio.
• Extend your time horizon as far as possible. The longer your time horizon, the easier asset allocation is. High-return assets, though they are risky over the short-term, are much less risky over longer periods. As emphasized in our enclosed article on long-term investing, in the long-run stocks are, by some measures, not much riskier than bonds.
  
• Remember that the probability that stock returns will exceed bond returns is high—even over short periods (about 71% for one-year periods form 1950 through 1999). The longer the time horizon, the higher the probability (about 93% for 15-year periods). This has been true for most of this century despite a wide array of economic environments, crises, and global changes.
  
• Do not lump all stock funds together. They are not all the same. Managers use different approaches to pick stocks, and it’s reflected in their funds’ returns. The result is that risk and return characteristics may differ materially across stock funds.

Setting Reasonable Objectives

The first step to determining reasonable risk and return objectives is to understand your risk tolerance. To do that you must honestly answer three questions.

1. What is your investment horizon?Will you need to liquidate a material portion of your portfolio over the short-term (five years or less), or can you leave the principal invested for the longer-term? You may need to use some income, appreciation, and even a bit of capital on an annual basis, but that doesn’t mean you have a short-time horizon. Many retired investors think they have a short investment horizon, when in fact they must make their money last ten years, 20 years, or even longer.

2. How much risk can you afford to take?This is driven partly by how close you are to meeting your investment objectives. If you are very wealthy and will never be able to spend everything you have accumulated, you have the best of both worlds. On the one hand, you can afford to take quite a bit of risk without jeopardizing your lifestyle. On the other hand, you could also keep risk very low because you don’t have to take added risk to create higher returns. In this situation you can decide solely on the basis of your comfort level (which we discuss more later). If you are young and have many years to invest, you can, and probably should, invest aggressively. Over the long-term this usually pays off, and the short-term risks wash out. On the other hand, if you can meet your goals without taking much risk, then a more conservative stance makes sense, especially if aggressive investing gone sour could jeopardize your goals. The process of quantifying how much risk you can/should take to meet your goals is more complicated than most people realize. There are software programs that can help. (Some fund companies have software, including T. Rowe Price, Scudder, and Vanguard.) A good financial planner can also do the analysis. The most important thing to remember is that the longer your time horizon, the more risk you can tolerate. Investors who don’t plan to touch their assets for ten years or more should probably have an all-equity mutual fund portfolio and leave the bond funds to investors who have short-term goals (and/or those who have a very low psychological tolerance for risk—our next topic).

3. What is your psychological tolerance for risk? This question is different from the last one. While you may have a long time horizon and/or plenty of capital (so theoretically you are able to take a lot of risk), short-term volatility may not be psychologically tolerable. In other words, an aggressive approach simply won’t pass the sleep test for some investors. One way to determine your short-term risk tolerance is to think about how big a loss you could take on your whole portfolio (not any particular piece) in any one year and stay relaxed. Could you sleep through a 5%, 10%, 20% or 30% decline? Remember, in a severe bear market, after you’ve already seen your portfolio value shrink, the press will probably be writing about how much worse it’s going to get. At a market bottom, it always feels like the bottom is still much lower. Of course the real issue is not actually your sleep, at least not from an investment standpoint. The real issue is whether your psychological intolerance for losses will cause you to sell at the most inopportune time—after a short-term loss, and no longer able to use a long time horizon to your advantage to compensate.

Evaluating your return objective is the flip side of the risk question. Though all investors would like to maximize return and minimize risk, it doesn’t work that way. Higher returns are usually accompanied by higher risk and vice versa. Nevertheless, determining the return you need to meet your goals helps you assess the trade-off as to whether the accompanying risk level is acceptable. If the trade-off is not acceptable, you will have to either lower your return objectives, save more, or increase your risk tolerance (not easy to do).

If you are a young investor with an investment horizon of at least 20 years, it’s probably neither necessary nor very useful to calculate a specific return goal. Targeting a return goal over such a long period is unrealistic, and with the advantage of time young investors can afford to be quite aggressive.

Setting objectives is one thing, determining if they are achievable is another. Returns have varied over time. In the 1950s stocks earned over 20% on a compounded annual basis. However, in the 1970s they earned only 7.9%. Intermediate government bonds made only 1.5% in the ’50s, but earned a 12.6% return in the ’80s. Our article on long-term investing should help you put these returns into perspective.

In that piece we limited portfolio choices to the two most basic asset classes: domestic large-cap stocks and intermediate-term bonds. However, in the real world investors can diversify more broadly among potentially higher-returning asset classes such as different investment styles (growth or value), different market-caps, international funds, junk bond funds, and REIT funds. These additional asset classes create the opportunity to enhance returns, often without increasing risk. We consider all of these asset classes for inclusion in our model portfolios.

Developing a historical frame of reference to understand how stocks and bonds have performed over time is an important starting point for any successful investor. Even more important is your ability to come to grips with your time horizon, risk tolerance, and return objectives. These are the critical ingredients to assessing which NLFA model to follow.

A Disciplined Approach

Most successful investors consistently apply an investment discipline. The consistent application of a specific decision-making process helps reduce the chances of getting whipsawed or making mental errors. Many investors make the mistake of chasing hot funds. Others become increasingly aggressive after periods of high returns, then panic after absorbing the losses of a market decline. Professional investors make these mistakes too, but good investors minimize these mistakes by sticking to a well-defined discipline. Our models are based on decisions from a disciplined investment process. Whether you follow our models or not, a strategy based on analysis, not the swings in market psychology, that you can stick with in good times and bad, is important to investment success.

UNDERSTANDING OUR ASSET ALLOCATION DISCIPLINE

The term asset allocation means different things to different people. Some investors equate asset allocation with short-term market timing. Others view it as a dynamic process of identifying longer-term valuation discrepancies between asset classes and taking advantage of these to either increase return without increasing risk, or to lower risk without sacrificing return. Some asset allocators use technical analysis (statistical models of price and volume data) to time shifts from one asset class to another. Others combine numerical analysis and qualitative judgment. Finally, some take a very long-term view of asset allocation and advise static allocations to various asset classes based on investor risk tolerance. There is no single “correct” way to allocate assets, though we don’t advocate short-term market timing or sole reliance on technical analysis. Our asset allocation decisions assume a minimum three-year time frame. Three years is long enough to give us confidence that underlying investment fundamentals, rather than short-term market sentiment, will drive returns. However, we continually test the overall portfolio risk over one year. Occasionally this forces changes in portfolio allocations based on a long-term decision horizon —most of the time it doesn’t. There are three primary steps to our asset allocation for our four model portfolio types:

1. First we establish a neutral allocation for each portfolio type.

2. We shift our asset allocation away from neutral only when there are “fat-pitch” opportunities:

• When one asset class is extremely undervalued relative to competing asset classes.
  
• When cyclical or other factors don’t significantly detract from the valuation story.
  
• When long-term trends that we believe will have a major impact in defining the upcoming investment climate don’t detract from the valuation story.

3. Finally we use scenario analysis to test the portfolios’ exposure to various downside risks.

The following discussion, mostly in question and answer format, describes each of these steps.

Step One: Neutral Allocations

What is a neutral allocation? It reflects a logical, static, strategic asset allocation for a hypothetical long-term investor who is not using active asset allocation. It is based on our evaluation of the historical long-term risk and return relationships of the asset classes, and what we consider to be realistic and reasonable expectations going forward. It is the starting point for our active asset allocation process.

What is the purpose of the neutral allocation?

1. The neutral allocation is the asset allocation that we will implement when our conviction level about any specific asset class is not high enough to justify changing the asset allocation mix. It gives us a sensible long-term allocation, based on sound research.
   
2. It gives us a constant frame-of-reference against which to measure decisions. For example, if we like REITs, we must decide what they will replace in the portfolio and how far from neutral we will stray. This will be a function of our confidence and the impact on the portfolio’s risk and return potential. The permanent frame-of-reference imposed by the neutral allocation increases the odds that we will consistently apply our methodology.
   
3. The neutral allocation also gives us a benchmark against which to measure our value added.

How did we choose the neutral allocations for each portfolio type?First we identified risk tolerances, defined as maximum losses over 12 months. Then we looked at many different combinations of asset classes over many historical periods. Through numerous iterations of adjusting the asset class mix, and looking at the results over various historical periods (over 55 years) that reflected differing circumstances, we came up with neutral allocations that:

1. Have very high statistical probabilities of not violating the stated risk tolerance for each model. (Though the probabilities are in the high 90% range, they are not 100%—there is no guarantee that the risk tolerance will not be violated going forward.)
   
2. Are diversified enough to provide some smoothing of performance.
   
3. Have delivered, over the average 10-year period, a higher return than a simple S&P 500/bond mix with slightly less variability. (In the case of equity portfolios, a higher return with less variation than the S&P 500.)
   
4. Make common sense as we look forward.

How did we choose which asset classes to include in the neutral allocation? We considered a variety of asset classes. However, we decided to stick to mature asset classes for which we have good historical data. In the end we settled on these asset classes as represented by these indexes:

• Investment-grade bonds—Lehman BrothersAggregate Bond Index
• Large-cap US stocks—S&P 500 • Small-cap US stocks—Russell 2000
• Foreign stocks—Morgan Stanley Europe, Australasia, Far East index (EAFE)

It is important to note that at times we will invest in asset classes that are not included in our neutral allocation.

Neutral allocations for each portfolio type are summarized in the table at the bottom of the page.

How have the neutral allocations performed historically? The table below depicts the historical performance for our neutral allocations based on the returns of the representative indexes. We’ve included the S&P 500 return for a comparison to the Equity portfolio. Note that the more diversified equity portfolio outperforms the S&P 500 over the average 10-year period. Though there is no guarantee this will continue in the future, our research covers a long time and shows that all equity asset classes have had runs of excellent relative performance—but they have always ended.

The table on the next page is based on rolling returns starting with each calendar quarter beginning in October 1968 and running through December 1999. October 1968 is the earliest month we had data for each of the four asset classes. For foreign returns prior to the inception of the EAFE index we used a composite of foreign stock funds. For small-cap returns prior to the inception of the Russell 2000 we used the Ibbotson small-cap data.

Step Two: Active Management — Swing at Fat Pitches

Our active asset allocation process (decisions to invest differently from neutral), emphasizes swinging only at fat pitches.

What is a fat pitch? Financial markets are quite efficient—most assets are priced fairly (based on all publicly available information) most of the time. This means that most of the time it is difficult to “out-smart” the market. However, the market does, occasionally, offer investors exceptional opportunities. Capturing a portion of the return from these opportunities, and locking them in for a full market cycle, can result in market-beating performance over a cycle. Warren Buffett puts it well when he refers to the manic/depressive nature of “Mr. Market.” Despite all the information that investors have at their fingertips, irrational greed and fear occasionally drive the market for financial assets. It isn’t the norm, but it happens. For example, we saw both extremes in 1998. Moreover, we know extreme over-reactions can be identified. We’ve done a reasonably good job at this over the years. Some of the fat pitches we have hit include:

• The overvaluation of junk bonds in the late 1980s. (We got out.)
• Buying opportunities in stocks, small-caps, REITs, and junk bonds beginning in late 1990 and early 1991.
• Buying opportunities in long-term bonds in late 1994.

Why swing ONLY at fat pitches? Swinging only at fat pitches is not the only way to invest successfully. However, too many investment professionals believe that investment success requires lots of activity. This is wrong. Our discipline allows us to “swing” only when we have very strong indications that the odds are heavily in our favor because the market is not pricing rationally—a fairly rare occurrence for asset classes. This may mean little activity in some years. Importantly, by only swinging at fat pitches (and patiently waiting for them), we minimize mistakes by not making shifts when the financial markets are not giving us a fat-pitch opportunity—not swinging when Mr. Market is neither manic nor depressive. So, we will take action only when the markets are clearly acting irrationally. When they are rational, we won’t try to make something out of nothing. It only takes a few fat pitches over a market cycle to make a difference. But it takes discipline and focus to have the patience to wait for the opportunity, and intestinal fortitude to act when the markets are irrational. Successfully executing a fat-pitch strategy will add value to long-term performance relative to the neutral allocation (a successful long-term investment strategy in its own right).

How do we know a fat pitch? First, we believe it is critical to apply a consistent approach to identifying fat pitches. This is part of our discipline. Our research suggests two important factors:

1. An extreme undervaluation (or overvaluation) relative to alternative asset classes. In measuring this undervaluation, we first compare equity assets (foreign stocks, small-caps, REITs) to the S&P 500. In balanced accounts we assess equity valuations against interest rates so we can determine if there is a fat-pitch opportunity between bonds and stocks.
2. The stage of the “risk cycle” can enhance or detract from the valuation argument.

Our research strongly suggests that extreme undervaluation in a particular asset class indicates a material period of outperformance is in store in the not too distant future. Prior to implementing our more stringent definition of a fat-pitch in early 1999, we had considered asset classes when they offered a moderate (but not necessarily an extreme) valuation advantage. We now believe we cannot justify overweighting an asset class based on moderate undervaluation. Many factors may cause an asset class to appear moderately undervalued when it is not. The fat pitches we will swing at will probably be the result of a bear market or a severe correction. This is when the depressive side of Mr. Market shows his face, often in the form of panic selling, causing extreme undervaluation. Also important is the stage of the economic/market cycle. For example, if we believe we are beginning a new market cycle (or very close to it) anticipating an economic recovery, this may enhance the valuation-driven fat pitch. Not only would this produce great valuations, but also an expected end to the fear-driven psychology that created the undervaluation. On the other hand, if we are late in the cycle, but not at the end of it, investors may continue to be cautious, avoiding the more risky assets that usually get beaten up in bear markets (economically sensitive assets and less—liquid assets—e.g. small-caps and REITs). This makes the fat pitch slightly less attractive, but may not invalidate it totally. Most of the time severe undervaluation coincides with a cyclical bear market when both factors are working together.

It is helpful to think of the market cycle as a risk cycle. As markets move past their early and mid-cycle strength, investors tend to temper their enthusiasm for more risky equity assets, though the enthusiasm for equities in general remains high, even growing. This leads investors to avoid less liquid or potentially more volatile asset classes. In an economic downturn, after markets have taken the cyclical hit, investors begin to anticipate a recovery and there is less of an inclination to avoid these more risky assets because of the expectation that the next downturn is a long ways off. Thus, a new risk cycle begins.

One problem is that investors may not know for sure whether a bear market marks the end of an economic cycle until after a rebound has occurred. Our discipline, which focuses on extreme undervaluation, will typically prompt us to take a slightly overweighted position in an asset class before this occurs. We would then increase exposure as we become more confident that a cycle is ending— even if valuations are not quite as good (though they would still be excellent). If we don’t get to this point, we would not add to the position and would unwind it at a lower relative valuation than if we knew we were early in the cycle.

The extreme undervaluation requirement also helps us create a sell discipline that will keep us from being overweighted to most asset classes late in their cycles. Prior to the implementation of our fat-pitch discipline we had done a good job of identifying buying opportunities, but were less effective selling. Consequently, we have been developing a specific buy and sell discipline for the asset classes we follow. Though we won’t follow these guidelines automatically, there must be extremely strong arguments for us to ignore a buy (increase the allocation) or sell (decrease the allocation) signal.

We also consider long-term trends and secular factors. Demographics, technological developments, global political developments and other factors may, at times impact our enthusiasm for a particular fat pitch.

When there is a fat pitch, how much will we buy or sell? This will depend on the portfolio. The more aggressive the portfolio, the wider our discretion to stray from neutral in each asset class. We’re also biased toward capital preservation in our more conservative portfolios and maximizing return in our more aggressive portfolios. The allocations will also depend on whether we believe we are early in cycle, in addition to whether it is an extreme valuation opportunity. The table at the bottom of the page indicates the asset class ranges for each portfolio.

How can we be confident there will be fat pitches in the future? Our high confidence that there will be fat pitches rests on the observation that fear and greed has always moved markets. Among other things, 1998 reminded us that these basic human emotions have not disappeared. When fear turns into panic, investors truncate their time horizons. They don’t care about three years, or perhaps even three months. This reaction can create tremendous values for those with a discipline that allows them to maintain reasonable time horizons. A strong discipline, consistently applied can give us the strength to act when others allow fear to cloud their decision-making. It will be especially important to avoid swinging at bad pitches as we wait for opportunities.

Isn’t this akin to market timing? No. We expect this discipline to lead us to overweight early (before a bottom) and get us back to our neutral allocation or below, early. But we have no expectations for stop on-a-dime market timing. In fact, our discipline is likely to lead us to reduce exposure far before a market peak, more often than not.

Step Three: Scenario Analysis

We use scenario analysis to assess risk exposure in each model portfolio. We consider different possible scenarios that could trigger a stock market decline. We then qualitatively assess the downside to stocks and bonds, and specifically, the individual funds we own to determine the downside exposure to the overall portfolios in each scenario. At times this analysis may lead us to be more or less defensive.

FUND SELECTION AND IMPLEMENTATION

After we have determined which asset classes offer value, we then turn to fund selection. Choosing the right funds is important. Even within a single asset class, performance can vary widely. Occasionally fund choice alters our asset allocation strategy. If we have a very high degree of confidence in a particular fund manager, we may allocate slightly more to that manager’s asset class. On the other hand, if there are no attractive funds in an attractive asset class, we may allocate less than we ideally would.

Additionally, a fund that is chosen to represent a specific asset class may not invest all of its asstes there. While some asset allocation approaches would call for the sale of a fund that strayed from the style for which it was chosen, we are comfortable giving talented managers some room to move.

Our first level of fund analysis focuses on the manager’s record and expenses. We are looking for long, consistent records of outperformance relative to peers. We like to have at least a five-year record, and are careful only to compare similar funds. (Returns for various style categories can differ widely, making it erroneous to draw conclusions about manager skill from comparisons of funds in different style categories.) However, as we all know, past performance is no guarantee of future returns. That’s why we spend a great deal of time trying to understand managers’ investment philosophies, getting to know the dynamics of the portfolio management team, and determining how successful managers have added value. We also assess managers’ personal characteristics against those that our many years of experience have shown us contribute to investment success. Fund selection (like asset allocation) is a combination of art and science. Performance is a screening mechanism, but there’s more to picking funds than hot records.

A number of factors influence the number of funds and the size of positions. For example, our allocations are affected by how many funds in which we a have a high degree of confidence are available in a given asset class. Occasionally new funds come along that look very promising, but we already own good funds in the same asset class. In this case, rather than recommending selling all of the existing fund, we may advocate taking a small position in the new fund. If we don’t have a high degree of confidence in a single manager in a specific asset class, we may use smaller positions in two funds or we may use an index fund.

When we buy a fund, we have no predetermined holding period. How long we maintain our position depends on how the asset class performs relative to its fundamentals and to other asset classes, and the continued validity of the fundamental reason for the allocation. We sell funds:

• to adjust asset allocations,
• if we lose confidence in a manger, or
• if we think there is a better alternative.

Funds we recommend as alternatives should provide similar, but not identical returns. Alternatives are suitable for investors who:

• can’t meet the minimums for our first choice,
• already have positions in the alternative funds and don’t want to sell for tax reasons, and/or
• can’t get into funds that are closed.

Subscribers use our portfolios in a variety of ways. Some follow them exactly and some use them only as rough guidelines. Each subscriber has to determine how well our portfolios fit their needs and risk parameters, and whether it makes sense to execute all the suggested transactions. Subscribers who are trying to follow the portfolios exactly should execute transactions as soon as possible.

In Conclusion

We hope this article has helped you understand the No-Load Fund Analyst’s investment process. Our discipline means taking action only when the odds of success are very high. Fundamentally, we are long-term investors looking for value in both the equity and debt markets throughout the world. After identifying “fat-pitch” asset-class opportunities, we execute our strategy using the best funds we can buy. We determine the “best” funds using a whole host of quantitative and qualitative criteria. Risk control is also critical. We manage risk probability through diversification and ongoing scenario analysis that tests for downside risk tolerance in severe sell-offs. Portfolio management is a dynamic process, calling for constant attention and adjustment at the margin to enhance returns as well as to control risk.

Disclaimer