IS YOUR STOCK PORTFOLIO UP OVER 25% THIS YEAR?

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
November 18, 2003

IN THIS ISSUE:

1.  A Stock Fund Advisor That Is Up Over 25% In 2003.

2.  A Bond Fund Advisor That Is Up Over 22% In 2003.

3.  Using Professional Advisors Versus Going It Alone.

Introduction

This week, we look at two mutual fund investment programs I have recommended over the last year that are up over 25% and 22% respectively so far this year (and two more that are up significantly more than that).  These very successful programs are easily accessible, and you could have made these exciting real returns.  But first a little background.

At the beginning of this year, stocks were in a downtrend and investors were pessimistic.  Yet if you were reading these weekly E-Letters back then, you will recall that I predicted stocks would reverse trend and head higher following the war in Iraq.  In the March 4 E-Letter, I stated the following:

The equity markets are very oversold; consensus opinion is quite bearish now; and thus the markets are ripe for a turnaround.  As I have stated for weeks, I believe this will be the best buying opportunity of the year, assuming the war goes well.”

During January, February and March, in anticipation of a major bottom in stocks, I wrote a three-part series of E-Letters entitled “The Mutual Fund Merry Go-Round” in which I made the case for using professional Advisors to manage your equity mutual fund investments.  (Those E-Letters are still available on my website www.profutures.com.)

During that same period in the early months of this year, I warned repeatedly that my best sources, including The Bank Credit Analyst, were predicting a major top in the Treasury bond market.  Here again, I recommended that investors reduce holdings of Treasuries and consider using a professional bond Advisor to manage that risk.

I even made some specific recommendations as to the Advisors, both for equity mutual funds and fixed-income funds.  This week, we will review the actual performance of these Advisors and their programs so that you can see the benefits of professional management.

Why Use Professionals Instead Of Do-It-Yourself?

I have long believed that most people are better off using professional Advisors to manage most of their investment portfolio.  Numerous studies over the years have consistently shown that most investors don’t make the desired returns for a variety of reasons.  Maybe they don’t have time to oversee their investments properly; maybe they don’t have a “system” for doing so; or most often, they move from fund to fund seeking better returns, even though they most often buy high and sell low. 

Whatever the reasons, I have found that most investors – myself included – get better results when they employ carefully selected professional money managers. 

The problem is finding the truly successful professional Advisors, as there are thousands of them out there.  The truly successful Advisors are relatively few and far between.  At ProFutures Investments, we specialize in scouring the globe to find truly successful Advisors to recommend to our clients.  We continually monitor various Advisor databases, publications and trade associations in our quest to find those truly successful Advisors.  We also attend money management conferences where the top-rated Advisors tend to gather.

How To Get Started – It’s Not Complicated

Once you have made the decision to use professionals, and you contact us, here is how the process works.  Together, we discuss with you your overall financial situation, your other investments, your goals and your tolerance for risk.  We then recommend the Advisor (or usually Advisors) that we think are best suited for you, and we send you complete information on that Advisor(s) for your review.  Most clients agree with our recommendation, but you make the final decision as to which Advisor(s) is selected.

Once that is done, you establish your own “managed account” at whichever custodian the Advisor(s) uses to make the investments.  In most cases, the custodian is either a major mutual fund family or a well-known trust company.  With the managed account, you still control your money; you can add to, reduce or close the account at any time you might choose.

The Advisor is given a limited Power of Attorney which authorizes the Advisor to make investments in your managed account.  Other than withdrawing their periodic management fees, the Advisor cannot take money out of your account.   Other than that, only you can take money out of your managed account.

Once the account is open, you receive monthly account statements showing your balance and any activity in the account.  If you prefer to monitor your account(s) more frequently, most custodians have online account access which you can monitor daily if you so choose.  Of course, you can also call us at ProFutures Investments.  Since I have personal accounts with every Advisor we recommend, we monitor their activity and performance results every single day.

Lastly, we consult with you periodically to see: 1) if the Advisor(s) is meeting your expectations; 2) if your financial situation has changed; and 3) if any changes should be made.  We also notify you if we should ever change our recommendation of the Advisor(s) you are using.  As noted above, we are continually searching for new Advisors, and we automatically let clients know whenever we find new Advisors that meet our strict due diligence requirements.

Again, it’s not a complicated process, and we are here to help you all along the way.

What Are The Fees & How Do They Work?

Most of the Advisors we recommend are so-called “active managers,” meaning that they will “hedge” their investments, partly or entirely, if their system indicates a bear market or a major adverse market correction.  In some cases, they will move partly or entirely out of the market and into the safety of a money market fund if their systems indicate that an adverse move is coming or if they feel the risk of loss is too high.

The objective of the active manager is to be in the markets when they are trending higher, but to the extent possible, move partly or entirely out of the market during bear markets and significant downward corrections.

Active managers typically charge annual management fees of 2%-2½% (or less depending on the account size).  While this is high as compared to most mutual fund fees, we look for Advisors who add value well above and beyond the fees they charge.  At the end of the day, we believe it’s more important that your investment performance improves than the amount of fees you pay.  Management fees are typically charged and deducted from the account on a quarterly basis.

You are probably wondering how we at ProFutures Investments make money in this arrangement.  The Advisors share a portion of their management fee with us in return for introducing the client.  Their management fee is the same whether we introduce the account or the investor goes to them directly.  This fee sharing arrangement is common in the investment industry.

By having ProFutures Investments in the loop, so to speak, there are no extra fees charged, and you have the benefit of our ongoing daily monitoring of the Advisors.  Plus, you will know if we find additional Advisors in the future that might be better for you, or a good addition to the Advisor(s) you already have.

So, with those details out of the way, let’s look at the actual net performance of the two professional Advisors I have recommended the most over the last year.

Niemann Capital Management – Equity Funds

Niemann Capital Management (NCM) is a great Advisor we discovered a few years ago.  You probably haven’t heard of them because they don’t do a lot of advertising.  They’re too busy knocking down impressive returns for their clients.  NCM has been managing money for outside clients since 1996.

NCM has two different equity mutual fund programs that we recommend.  One is called their “Risk-Managed Program” and the other is their “Dynamic Program.”  Here are their actual performance results, net of all fees and expenses, for the following periods: 2003 to-date through October 31; the 3-year average annual return; and the 5-year average annual return.  (Note that the 3-year return includes the recent bear market.)

Program

2003

3-Year

5-Year

RISK-MANAGED

25.8%

7.8%

17.6%

DYNAMIC

42.7%

10.7%

27.6%

S&P 500 INDEX

21.0%

-8.4%

0.5%


Again, these are actual performance results, in real accounts, after all fees and expenses were deducted.  And these are not handpicked accounts; the numbers above are a composite (average) of all the accounts they manage in each program.

As you can see, NCM is having an outstanding year in 2003.  They even made very respectable returns during the bear market.  And they beat the pants off of the S&P 500 Index in every period shown.  Past performance is not necessarily indicative of future results.

The Risk-Managed Program is the less aggressive of the two programs.  It utilizes “hedging” periodically during market downturns.  Or, it will go partly or entirely to cash (money market) if NCM’s system signals to exit the market, either due to a downtrend or unacceptably high risk.

The Dynamic Program is more aggressive in that it is always 100% invested in the market.  It uses a proprietary “sector rotation” strategy whereby they invest in those mutual fund sectors that their systems project to be the most profitable.  Because the technology stocks have been very hot this year, the Dynamic Program has been partly invested in this sector, and this one reason the returns are so much higher.

Niemann invests in various large, well-known mutual funds including Fidelity funds, so Fidelity is where client accounts are established and held.  The annual management fee is 2.3%.  The minimum account is $100,000.  (We have other equity Advisors who accept smaller accounts, some as low as $15,000.)

These programs are not suitable for all investors.  See Important Disclosures below.

Capital Management Group – Bond Funds

Capital Management Group (CMG) is another outstanding Advisor we found in 2002.   Like NCM, they don’t advertise much so you probably haven’t heard of them.  They’re focused on investment returns, not marketing.  CMG’s founder and president, Steve Blumenthal, is the current chairman of SAAFTI, the large, well-known association of professional money managers.  CMG has been managing money for over a decade.

CMG has two different bond mutual fund programs that we recommend.  One is called their “Managed Program” and the other is their “Leveraged Program.”  Both programs invest in large high-yield bond funds offered by several well-known mutual fund families.  High yield bond funds have greater risks than many other mutual funds and are therefore not suitable for all investors. 

Here are their actual performance results, net of all fees and expenses, for the following periods: 2003 to-date through October 31; the 3-year average annual return; and the 5-year average annual return. 

Program

2003

3-Year

5-Year

MANAGED

22.6%

14.9%

12.0%

LEVERAGED

38.3%

19.8%

16.1%

S&P 500 INDEX

21.0%

-8.4%

0.5%


Again, these are actual performance results, in real accounts, after all fees and expenses were deducted.  And these are not handpicked accounts; the numbers above are a composite (average) of all the accounts they manage in each program.  Remember, this is a bond program, even though the results rival equity-type returns.

As you can see, CMG is having another outstanding year in 2003.  They made money even as Treasury bonds and most bond mutual funds that invest in Treasuries were hammered.  High yield bond funds march to a different drummer and tend to do the best when the economy is coming out of a recession.  Past performance is not necessarily indicative of future results.

The only difference between the Managed Program and the Leveraged Program is the latter uses margin to leverage up to as high as 2-to-1.  The Leveraged Program is obviously the more aggressive of the two programs.  Both programs will go partly or entirely to cash (money market) if CMG’s system signals to exit the market, either due to a downtrend or unacceptably high risk.

CMG accounts are established at Trust Company of America.  The annual management fee is 2.25%.  The minimum account is $25,000.

These programs are not suitable for all investors.  See Important Disclosures below.

Two Of The Very Best

In my opinion, Niemann Capital Management and Capital Management Group are two of the best mutual fund Advisors in the business.  Both companies have solid management, sophisticated investment systems, strong commitment to continuous research and dedicated staffs.

As you saw in the performance numbers above, NCM has delivered outstanding results and even managed to come through the worst bear market in decades without incurring substantial losses.  While not suitable for all investors, NCM should be a consideration for most equity portfolios.

Likewise, CMG has delivered outstanding results in bond funds.  Best of all, CMG’s returns are very steady.  Losing periods have been especially mild.  Don’t let the fact that CMG invests in high-yield bond funds throw you off the trail.  CMG only invests in highly diversified bond mutual funds.  While not suitable for all investors, CMG deserves your serious consideration.

If you have been thinking of using professional Advisors for a part of your investment portfolio, I encourage you to get more information on NCM and CMG.   We are happy to send you the complete information, along with account forms, at no obligation to you.  You can call us toll free at 800-348-3601 or e-mail us at mail@profutures.com.

NCM and CGM are only two of the professional Advisors we recommend.  We have several others.  If you cannot meet NCM’s account minimum of $100,000, we have other equity Advisors who accept accounts as small as $15,000.

Why I Am Telling You This Now

In March, just prior to the war, I recommended that readers move back to a fully invested position in equities.  Obviously, that was a great call and a lot of “easy money” has been made over the last eight months.   Yet I do NOT believe it will be so easy going forward! 

While I do believe that stocks still have upside potential, the risks are greater now than they were back in March.  First, many stocks are over-valued now as a result of the big move up this year.  Second, money is gushing into mutual funds today; inflows are back to levels not seen since the late 1990s during the boom. Remember that most investors come late to the party.

Most importantly, there is no guarantee that stocks will continue to move higher from these levels.  As noted above, I believe there is still upside potential, but it’s not a certainty.  There will almost certainly be some significant downward corrections in the coming weeks and months.

This is precisely why I feel it is important at this point to have professional Advisors, with the potential to hedge some of the risk, managing a good part of your money.  That is why I am telling you this now.

Many investors I talk to have NOT made a lot of money this year, and many others have lost money – especially those who were loaded-up on bonds and bond funds.  Many investors never got back into stocks when I recommended it in March.  Now, many of them are jumping back in at much higher and riskier levels.

If you are ever going to consider using professional Advisors, this may prove to be an opportune time.  I invite you to join my more than 1,800 clients all across the country.  I’ve never met most of them.  They have come to me largely by word-of-mouth referrals.  The fact that it’s a long-distance relationship is never a problem.

If you want the potential for better investment returns, think about handing the job over to professionals.  I think you’ll be glad you did!  Call us at 800-348-3602 or visit our website at www.profutures.com for more information.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

It’s bad, but it isn’t market timing, by Mark Hulbert.

IMPORTANT DISCLOSURES:

ProFutures Capital Management Inc. (PCM) and the other advisory firms discussed above are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. This publication is not intended as personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. There is no foolproof way of selecting an Investment Advisor. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. PCM receives compensation from NCM and CMG in exchange for introducing client accounts. For more information on PCM or NCM or CMG, please consult PCM Form ADV II or NCM Form ADV II or CMG Form ADV II. Officers, employees, and affiliates of PCM may have investments managed by the Advisors discussed herein or others.

Returns illustrated above are net of the maximum Advisor management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. Dividends are reinvested. Performance is based on actual accounts which are considered representative of the majority of client accounts with similar investment objectives. To the extent possible, PCM has attempted to verify the performance by examining selected customer account statements and/or independent custodian statements, and by comparing to the performance in Gary Halbert’s accounts with each Advisor. However, since only selected accounts were analyzed there can be no assurance that the performance in these accounts was consistent with all others. In all cases, performance histories reflect a limited time period and may not reflect results in different economic or market cycles.

Individual account results may vary based on each investor's unique situation. No adjustment has been made for income tax liability. Performance for other programs offered may differ materially (more or less) from the program illustrated. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments. Investment returns and principal will fluctuate so that an investor’s account, when redeemed, may be worth more or less than the original cost. Any investment in a mutual fund carries the risk of loss. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. Officers, employees and affiliates of PCM may have investments managed by Advisors discussed herein and others. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors.

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

As a benchmark for comparison, the Standard & Poor’s 500 Stock Index (which includes dividends) represents an unmanaged, passive buy-and-hold approach. The volatility and investment characteristics of the S&P 500 or other benchmarks cited may differ materially (more or less) from that of the Advisors.

The individual account performance figures for Capital Management Group reflect the reinvestment of dividends, and are net of applicable commissions and/or transaction fees, CMG investment management fee, and any other account related expenses. In calculating account performance, CMG has relied on information provided by the account custodian. The CMG Risk Management Plan is a technically based strategy. The performance illustrations are based on actual account performance from 2000 to present (Trust Company of America client accounts), and the results from November 1992 to 2000 are based on actual trade signals applied to the funds. CMG traded most of the stated funds but not all funds for the period reflected. The above accurately reflects the blended results of an assumed investment in the funds when applying CMG’s actual trade dates for the period indicated and under the conditions stipulated when applying the risk management techniques to the actual price movements of the Funds. The period 1992-1997 was a period of generally rising fund prices. The period 1997-2001 was a period of generally declining prices. A money market rate of 5% was assumed from 1992-1999. All dividends and capital gains have been reinvested. The results shown are net of CMG’s 2.25% annual management fee.

CMG invests in various high yield bond funds.  High yield bond funds have greater risks than many other mutual funds and are therefore not suitable for all investors. This illustration should not be construed as an indication of future performance which could be better or worse than the period illustrated.

 

 

 

 


Read Gary’s blog and join the conversation at garydhalbert.com.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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