Enhanced Stock Upgrading:

Enhanced Stock Upgrading is a “momentum” strategy built on the idea that recent performance tends to persist. The strategy normally diversifies across seven stock fund “risk categories”.

Enhanced Stock Upgrading attempts to own what we believe are the best-performing stock mutual funds and ETFs, regardless of what the current market environment may be. The Enhanced Stock Upgrading strategy has been a principal investment strategy recommendation of the Sound Mind Investing newsletter, a separate entity, to thousands of subscribers since it began publication in 1990.

In this strategy we continually monitor and rank thousands of mutual funds and ETFs in order to determine which ones have been performing the best recently. We purchase the underlying funds showing superior performance relative to their peer group.

Enhanced Stock Upgrading is based on research indicating that, as economic conditions change, market leadership rotates among companies of different sizes, and among different investment approaches.

While market conditions are constantly changing, fund managers rarely change their approach. Managers that excel under one set of market conditions are often only average (or worse) under a different set of conditions. Enhanced Stock Upgrading attempts to seek out and buy those funds that are excelling right now. Enhanced Stock Upgrading strives to own funds that reflect the market's continually evolving leadership. While most investment approaches focus on long-term performance as the key to determining which mutual funds will succeed in the future, we believe the opposite is true. Research has shown that funds exhibiting superior performance in recent months tend to continue to perform well in the following months. This approach to selecting new funds, coupled with a strong discipline to replace lagging funds, is the key to the Upgrading strategy. The Enhanced Stock Upgrading strategy typically invests in underlying funds in the following seven “risk categories.”

• Large-Cap Value
• Large-Cap Growth
• Small to Mid-Cap Value
• Small to Mid-Cap Growth
• International (which can be replaced with commodities and domestic ETFs)
• Commodities
• Non-Diversified

These broad category definitions make a wide range of investment opportunities available.

Note that the “2.0” update to the Upgrading strategy enables the managers to shift part of (up to all of) the Upgrading 2.0 portfolio to cash.

Sector Rotation:

This strategy typically invests in a small number of special-purpose stock funds (and ETFs) that focus on specific sectors, like biotech or financial services. These funds may use leverage. These funds are identified by SMI’s quantitative analysis techniques. Sector Rotation is usually considered a high-risk, but potentially high-reward strategy. While its peaks and valleys are expected to be higher and lower than the other SMI strategies, Sector Rotation’s goal is to generate impressive long-term returns. The SMI Funds using this strategy will typically achieve exposure to it by owning between 5 and 10 stock funds or ETFs at a time.