No matter where you are on the spectrums of age, wealth, investing experience, or risk tolerance, SMI has strategies that are designed to meet your needs. Each of our strategies is a quantitative approach to investing; this means that each strategy relies on quantitative analysis to guide each move.
The Sound Mind Investing Funds are designed for investors who recognize the tremendous potential of Dynamic Asset Allocation, Stock Upgrading, and Sector Rotation, but who prefer to have the strategies implemented for them by professionals.
Solid strategies and management you can trust are two of the key ingredients you should look for in choosing mutual funds. We believe the Sound Mind Investing Funds offer both, and invite you to examine whether they may be the right investment vehicles to help you pursue your financial goals.
**Please click on the strategies to learn more**
DAA - Dynamic Asset Allocation:
Dynamic Asset Allocation (DAA) strives to capitalize on the fact that economic conditions change over time. The economy unpredictably cycles through extremes of prosperity, recession, inflation and deflation. During each of these economic phases, certain assets tend to perform well, while other assets do not. The goal of DAA is to invest in the asset classes that are best suited for the current economic environment and (possibly more importantly) to not be invested in the asset classes that are poorly suited for the current economic environment.
The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time. The six asset classes are:
- US Stock Market
- International Stock Market
- Real Estate
- Precious Metals (Gold)
DAA is designed to be a defensive, low-volatility strategy with the goal of demonstrating the power of “winning by not losing.”
|SMI Funds Using DAA||% of Fund’s Portfolio Typically Using This Strategy|
Stock Upgrading is a “momentum” strategy built on the idea that recent performance tends to persist. The strategy normally diversifies accorss five stock fund “risk categories”.
Stock Upgrading attempts to own the best-performing stock mutual funds and ETFs (collectively, “underlying funds”), regardless of what the current market environment may be. The 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 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, and hold them until they stop outperforming. When that occurs, those lagging funds are sold and replaced with other funds showing stronger recent performance.
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. Rather than buy a fund and hold it through both the periods that favor the manager's approach and the periods that don't, Stock Upgrading attempts to seek out and buy those funds that are excelling right now. We make no attempt to predict which funds will lead the market in the future. Instead, Stock Upgrading helps us to gradually move into 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. As a result, we focus only on returns over the past 12 months in determining which funds are the best candidates for ownership. This approach to selecting new funds, coupled with a strong discipline to replace lagging funds, is the key to the Upgrading strategy. The Stock Upgrading strategy typically invests in underlying funds in the following six “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)
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.
|SMI Funds Using Stock Upgrading||% of Fund’s Portfolio Typically Using This Strategy|
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.
|SMI Funds Using Sector Rotation||% of Fund’s Portfolio Typically Allocated to This Strategy|