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The FundX Upgrader Funds offer a suite of fully invested equity funds designed to meet investors’ desire for long-term growth. These go-anywhere growth strategies aren’t limited to any one area of the market. Instead, these strategies can take advantage of different capitalizations like small-, mid-, and large-cap; investment styles, such as growth or value; and regions, including emerging markets, developed markets, and the U.S.
We believe there are several key factors that differentiate our go-anywhere growth strategy from other strategies, including the tools we use to position the Fund portfolios, our portfolio selection process, risk management, and our strategy to capitalize on changing markets.
Most mutual funds invest in individual stocks. The equity FundX Upgrader Funds invest in mutual funds and exchange traded funds (ETFs) because funds and ETFs offer what we believe is the most efficient way to capture changing market leadership. We believe the flexibility to dynamically make fundamental changes to our portfolio is key to the long-term success of our strategy.
We select diversified portfolios of funds and ETFs using a process called Upgrading. FundX Investment Group developed the Upgrading strategy, and has been using it to manage portfolios of noload funds since 1969.
In Upgrading, we sort funds and ETFs by risk, separating more speculative sector and single-country funds from more diversified funds, and we rank these funds each month based on relative performance. We buy highly ranked funds and ETFs and sell these funds when they fall in our ranks. By continually following this active process of buying leaders and selling laggards, the Upgrading strategy seeks to align the FundX Upgrader Funds portfolios with current market leadership and change the Fund portfolios as market leadership changes.
Moderate growth portfolios like FUNDX are primarily invested in core diversified funds and ETFs and have limited exposure to more speculative funds and ETFs. More aggressive growth portfolios such as HOTFX have significant allocations to more concentrated sector and single-country funds.
Markets change over time. Sectors and industries become popular and then go out of favor, and economic factors such as interest rates and growth rates affect different areas of the market in different ways. This leads some areas of the market to perform better than others, often for many years.
Historically, market leadership has rotated between international and domestic markets, value and growth investment styles and large- and small-cap stocks. The tech boom of the late 1990s was part of a strong growth trend, and the tech bust marked a rotation back to value. From 2002 through 2007, international markets were in favor, and domestic markets lagged. From 2007 through 2011, domestic markets, particularly large-cap growth, has led, and international markets, especially emerging markets have lagged. On average, these trends have lasted from four to six years.
The equity FundX Upgrader Funds seek to capitalize on these long-term market leadership cycles by increasing their allocations to leading areas of the market.
Investors seeking long-term growth through a diversified portfolio of equity funds and ETFs may want to consider any of the FundX core equity funds as a core component of their equity allocation.
Diversification does not assure a profit or protect against a loss in a declining market.