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Coral Blue Background
All stock portfolios rose in this past, confusing, week of optimistic and pessimistic economic results.
There are no trades this week. However, the S&P 500 did recently hit a five-and-a-half year high. What does that mean?
Avoid traditional index funds
The most popular funds in America are S&P 500 index funds, and it has taken 66 months for them to simply break even. They aren't worth it. They cost too much in management fees and lost opportunity, and you deserve better from an innovative mutual fund industry.
S&P 500 primer
The Standard & Poor's 500 Index SPX represents the bluest of the U.S. blue-chips: The 500 largest capitalization stocks in America. They are the benchmark for mutual funds and investors to match.
Your employer probably offers an S&P 500 Index Fund in your 401(k) so you can earn at least "average" stock market returns. They are the most widely owned funds around.
Investment researcher Morningstar Inc.'s Fund Forums feature a platform for die-hards discussing Vanguard funds, led by one of the largest index funds: Vanguard 500 Index Fund. VFINX.
Target maturity funds often use S&P 500 index funds and government bond funds as their core investments. These portfolios allocate more to stock funds at first and move assets to the "safer" bond funds as they approach a pre-determined date when presumably the investor will use the money in their retirement.
S&P 500 index funds probably hold more mutual-fund money than any other type of mutual fund.
Yet if you invested in such a fund over the past 66 months, you would have been likely to break even. The headline, "S&P 500 hits five-and-a-half year high" also means that investors wasted five-and-a-half years investing in them just to break even.
That is not good news; that is a tragedy. The fact that billions of dollars of good money is thrown to professional fund managers to produce that return, that those managers made a greater profit than their shareholders, speaks to what a rip-off traditional S&P 500 index funds can be.
Proactive Fund Investor, on the other hand, recommends using portfolios of index funds which are tied to many sectors, countries and regions as well as different kinds of bond indexes as well.
Misleading mutual-fund myths
I attended an interesting conference given by Icon Funds in Denver, a fund family with a philosophy similar to Proactive Fund Investor. One of their officers cited three academic studies which addressed single-index funds or style-box funds which stick to only one "type" stock: large-, mid- or small-cap stocks and or growth, value or blended stock portfolios.
Their thesis was that on average, a fund that remains only in one loosely-defined style-box costs its investors an average of three percentage points a year by not seeking stronger-performing stocks in other style-boxes. In the international stock funds, the lost opportunity cost might be six percentage points.
Moreover, no strong academic basis proved that style-boxes were a valid classification of stocks adding value to the investment strategy. Nor did individual stocks remain in their original style-boxes. This forces a style-box fund to trade more often to avoid changing classification by Morningstar and other fund rating services.
A professional publication studied six different risk-rating questionnaires and found little valuable information defining risk tolerance or that risk tolerance was valuable in selecting funds.
One wonders why some financial planners apply style-box selection and risk tolerance measures with such rigidity.
On the other hand, growth funds sound like they might grow, and who wants to ask all of those questions about risks just before you close the mutual fund or annuity sale?
Proactive Index Portfolios
There are no trades recommended in the Proactive Index Portfolios this week. The market rose and fell this week, and essentially nothing changed in the longer-term trends.
For now, these three portfolios are probably to be avoided in the short-term and watched closely for opportunities in the long-term. Bear markets can be long-term affairs as we saw last time around and you don't have to take a very aggressive position at the beginning to make a lot of money over the intermediate-term. If you are profiting as others are losing money, you are getting a big leg up on long-term performance.
For most of you, stick with the Sector ETF and PFI's Best Portfolios until the market starts its long and painful stride. At least you won't have to be frustrated waiting until the bear finally arrives.
Rydex Index Portfolio
We're still long on the larger cap stocks and short on the smaller cap stocks and that's working out well.
No changes this week .
| Ticker | Fund Name | Purchase | Weight | Change |
| RYZAX | Rydex Large Cap Value (Long S&P 500/Citigroup Pure Value Index) | 02/28/06 | 20% | 3.78% |
| RYMHX | Rydex Inverse MidCap (Short S&P MidCap 400 Index) | 8/1/06 | 20% | 0.00% |
| RYAIX | Rydex Inverse OTC (Short Nasdaq 100 Index) | 6/6/06 | 20% | -1.22% |
| RYAVX | Rydex MidCap Value (Long S&P MidCap 400/Citigroup Pure Value Index) | 9/12/06 | 20% | -1.53% |
| RYSHX | Rydex Inverse Russell 2000 (Short Russell 2000) | 7/5/06 | 20% | 0.89% |
We built this five-fund portfolio from the eight bull market and five bear market (inverse) single-beta stock index funds with the strongest positive price momentum that are currently available from Rydex. Recommendations are evaluated weekly. Often the most economical trading platform for this portfolio is to invest directly with Rydex Investments if you can qualify for the $25,000 minimum initial investment ($50,000 for on-line trading). Avoid traditional brokers which often require unwarranted minimum holding periods, short-term trading fees and excessive trading costs.
Rydex Index Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| 0.25% | -1.52% | -1.25% | -0.16% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue.
ProFunds Index Portfolio
This portfolio mirrors the large-cap weighting of the Rydex Portfolio and adds a Falling U. S. Dollar dimension.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| FDPIX | ProFunds Falling U.S. Dollar | 6/13/06 | 20% | 1.81% |
| LVPIX | ProFunds Large Cap Value (Long S&P 500/Citi- group Value Index) | 5/31/06 | 20% | 3.36% |
| LGPIX | ProFunds Large Cap Growth (Long S&P 500/Citi- Group Growth Index) | 9/19/06 | 20% | -0.33% |
| SOPIX | ProFunds Short OTC (Short Nasdaq 100 Index) | 6/20/06 | 20% | -3.25% |
| SHPIX | ProFunds Inverse Small Cap (Short Russell 2000 Index | 7/18/06 | 20% | -4.76% |
We built this five-fund portfolio from the eleven bull market and four bear market (inverse) single-beta stock and currency index funds with the strongest positive price momentum currently available from ProFunds. The most economical trading platform for this portfolio is to invest directly with ProFunds if you can qualify for the lower-than-Rydex $15,000 minimum initial investment. Avoid traditional brokers which often require unwarranted minimum holding periods, short-term trading fees and excessive trading costs.
ProFunds Index Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| 0.55% | -1.07% | -1.95% | -2.15% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue.
Double-Beta Portfolio
The Aggressive Investor needs a strong stomach to wait for the bear to come around the corner. In the short-term it's probably not worth it, but keep your eye on these funds.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| USPIX USPIX | ProFunds Ultra Short OTC (Short Nasdaq 100) | 6/27/06 | 34% | -10.71% |
| UIPIX | ProFunds UltraShort MidCap (Short S&P MidCap 400) | 7/25/06 | 33% | -0.63% |
| UCPIX | ProFunds UltraShort Small Cap (Short Russell 2000) | 9/6/06 | 33% | -1.74% |
We built this three-fund portfolio from the five bull and five bear market double-beta domestic equity funds currently available from Profunds for long-term investors seeking a more aggressive portfolio. The safest time to start investing might be after the next SELL signal by investing in the new BUY recommendation. Funds are selected with the strongest positive price momentum.
Double-Beta Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| 2.32% | -3.65% | -2.11% | -4.37% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. ETF shares change throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary.
Sector ETF Portfolio
While Mexico is pulling back a bit from its strong climb in value, all of the Sector ETF investments are holding on to strong intermediate-term trends. This Portfolio continues to be one of my favorites.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| EWN | iShares MSCI Netherlands | 9/12/06 | 20% | 1.23% |
| EWW | iShares MSCI Mexico | 8/22/06 | 20% | 0.58% |
| VOX | Vanguard Telecommunications Services ETF | 9/19/06 | 20% | 1.76% |
| EWP | iShares MSCI Spain | 7/5/06 | 20% | 8.19% |
| RWR | streetTRACKS Wilshire REIT | 7/11/06 | 20% | 6.27% |
| FDRXX | Fidelity Cash Reserves | 0.00% | 0% |
We built this five-position portfolio using the five ETFs with the strongest positive price momentum from a universe of 124 sector, style-box, single-country and regional ETFs.
Sector ETF Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| 0.34% | 2.53% | 3.74% | 32.06% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. ETF shares change throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary.
Cool Income Portfolio
High Yield funds are back on the track as inverse long-government bonds take a breather.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| FSICX | Fidelity Strategic Income | 7/26/05 | 50% | 7.44% |
| RYJUX | Rydex Inverse Government Long Bond (-1.0 Beta to 30 year treasury bond) | 03/14/06 | 50% | 1.20% |
This deceptively simple portfolio takes advantage of two 50% allocations to: (1) High-Yield Bonds. As a long-term investment, Fidelity Strategic Income Fund (FS ICX) is a well-managed multi-asset bond fund which proactively manages both its bond maturities and allocation to high yield bond markets. (2) Government Bonds. The portfolio seeks to profit from the Rydex Juno during rising interest rate markets as well as money market positions.
Cool Income Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -1.20% | -0.86% | -1.79% | 4.56% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. Money Market returns based on Fidelity Cash Reserve (FDRXX). Your yields may vary.
PFI's Best Portfolio
You have got to like the performance of Spain and the REITs for now with High-Yield funds still showing a steady upward climb.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| VPU | Vanguard Utilities ETF | 8/1/06 | 8% | -1.54% |
| EWQ | iShares MSCI France | 9/6/06 | 8% | 0.62% |
| FEZ | streetTRACKS DJ Euro STOXX 50 | 8/29/06 | 8% | -0.53% |
| RWR | streetTRACKS Wilshire REIT | 7/5/06 | 8% | 7.26% |
| EWK | iShares MSCI Belgium | 9/6/06 | 8% | 2.64% |
| EWW | iShares MSCI Mexico | 8/22/06 | 8% | 0.58% |
| EWP | iShares MSCI Spain | 6/20/06 | 8% | 15.42% |
| EWN | iShares MSCI Netherlands | 9/12/06 | 8% | 1.23% |
| EWI | iShares MSCI Italy | 9/12/06 | 8% | -0.75% |
| VOX | Vanguard Telecommunications Services ETF | 9/12/06 | 8% | 2.28% |
| FSICX | Fidelity Strategic Income | 7/26/05 | 10% | 7.44% |
| RYJUX | Rydex Inverse Government Long Bond (-1.0 Beta to 30 year treasury bond) | 3/14/06 | 10% | 1.20% |
The portfolio holds about a dozen positions chosen from over 150 current ETF, Rydex and ProFunds no-load sector index funds as well as a 20% position in the Cool Income Portfolio. In troubled markets, this portfolio can be as much as 50% in money funds.
PFI's Best Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| 0.16% | -0.92% | -0.09% | 18.54% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. ETF shares change throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary. Money Market returns based on Fidelity Cash Reserve (FDRXX). Your yields may vary.
Q&A
Send your questions to mwfeedback@marketwatch.com and be sure to note that it's for PFI.
Bill Donoghue
Source: https://www.marketwatch.com/story/blue-about-blue-chips
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