Fund Trading Indexes Newsletter 2003-1
January 4, 2003
Dr. Ben Buckner, Editor

The topics for this issue are:

a.  YTD and monthly gains and total number of trades for 2002.
b. Editorial comments on the first year of the FTI System.
c. The new look for 2003.

YTD (12/31/02) and monthly gains and total number of trades for the year.

                                               Year     December  Total Trades

One-Fund Basic System       +17.1%      -8.1%            11
Two-Fund Basic System        +2.0%       -9.2%           23
Three-Fund Basic System      +7.3%       -9.1%           34

One-Fund Value System      +5.1%         -1.1%          13
Two-Fund Value System     +12.2%       +1.2%          20
Three-Fund Value System    +3.9%        +1.3%          29

VALIC 403b                       +13.4%        -4.4%          4       63 fund choices
VALIC 401a                        +1.5%         -4.4%          6       18 fund choices
Fidelity VIP Annuity             +3.9%         -3.9%           5       27 fund choices
CREF 401a                           -5.9%         -1.2%          6         7 fund choices                        

S&P 400 Midcap Index        -15.5%       -4.2%
Dow Jones Ind. Average      -16.8%       -6.2%
Russell 2000 Index               -21.6%       -5.7%
S&P 500 Index                     -23.4%       -6.0%
NASDAQ Index                   -31.5%       -9.7%

The above returns were calculated using a "pure" application of the system, without consideration for modifications and suggestions made in newsletters and weekly reports, which began to be made around August.  Once that thread of activity was started at the beginning of the year, it was kept consistent for the entire year, for calculating the above returns.  Therefore, there will be some differences between these returns and what may have transpired using the newsletter suggestions.  One reason we have started using a "guided approach" is to avoid such discrepancies and the associated confusion.  From now on, YTD results will be based on the "guided approach", using the funds cited in the weekly newsletters to paid subscribers.

Editorial Comments

The less volatile Value system did better since October than did the more aggressive Basic system.  There is always more risk with being more aggressive.  The December returns, for example, were much better with the Value approaches.  They all beat the market indexes for December.

For the year, any of the FTI System approaches soundly beat the market indexes, showing that just about any approach "works" over a longer term.  Even the annuities type retirement plans, with very limited fund universes were ahead of the indexes.  The VALIC Portfolio Director, with its 63 well selected fund choices made a remarkable showing, coming in ahead of most of our approaches using the huge brokerage account fund universe, and with only 4 trades for the entire year.  As fund choices decline, however, returns suffer, the CREF showing being the lowest.  Again, it is worth stating, that even the CREF application of the FTI System still beat the market indexes.

One year is insufficient to declare that any one of the approaches is better than any of the others.  My instinct, developed from back-testing and personal use of the system, says that the One-fund Basic approach will yield the highest returns over several years' time.  But, there will undoubtedly be periods when it will see declines in returns.  There is a "season" for everything, and the last four months was not the season to be aggressive.  That is why I continued to suggest more funds, with some diversification during these last several months.

It is too bad this system was launched during the third consecutive year the stock market has declined, the first time this has happened since the middle of Franklin D. Roosevelt's Presidency.  We did all right, but too many people simply mistrust the markets at this time, and any system associated with them. The system had a good start this year, considering the prevailing distrust and lack of enthusiasm for investing in the stock market.  If all of our approaches were well into positive territory with the indexes down from 15 to 31%, think of the possibilities if this market ever does get back to making positive returns, especially if they are double-digit!   FTI System returns in the past have been  relative to what the market is doing (and always a giant step above the markets).  Even a small loss in 2002 was a gain, in comparison to the market indexes.

The New Look for 2003

This year will see some modifications to the approaches to using the FTI System, for those using what we will call the self-managed approach.  Instead of Basic and Value approaches with 1, 2, and 3 fund choices for a total of 6 possibilities, we will have only three approaches, called the Aggressive Growth, the Moderate Growth, and the Conservative Growth.

The user of the Aggressive Growth approach will hold only one fund.  Essentially, this is the same as the 1-fund Basic approach used in 2002 and for the back-testing.

The user of the Moderate Growth approach will hold two funds, selected mainly for diversification, with a new variable called risk factor (RF) and redemption fees influencing the decision on the second fund.

The user of the Conservative Growth will hold three funds.  These will be selected from only no- redemption fee funds.  And, there is an upper limit on the risk factor of funds using this approach.  Diversification among fund styles shown on the weekly "top 40" list will influence decisions for fund selection.

Each person will assess his or her "risk tolerance" and decide an approach based on that.  Approaches can, of course, be changed from time to time, according to changes in the market direction and personal preferences.

I feel that these changes will simplify the use of the FTI System.  Using one of the three approaches, there is less need to make judgments about funds than may have been experienced in 2002.  It keeps the system within the context of a technical approach, with clearer guidelines for each of the three approaches. 

In addition, there will be a guided approach to using the FTI System.  That is, we will track "model" portfolios this year, showing the funds held in our models each week for the three approaches.  We started a variation of this a few months ago, but it was rather loose advice, with tentative suggestions.  Now, the models will be cited in a definite and unambiguous manner.

Still more, we have essentially developed the fee-based approach, whereby you can elect to use our financial advisor to manage your funds for a small percentage fee.  This person will use the FTI System, and is very enthused about it. The person to be used is with a reputable company.  They have over 7,500 funds available.  The details of this will be announced soon.  Look for a new link on the home page to this.

The Weekly Trading Indexes display has been improved, with the addition of a column for fund style, and the ability to "click on" the fund symbol to reach a lot of information about each fund.

Our web site information has not yet been updated to reflect these changes.  Details of the new approaches have been sent to all paid subscribers.

The 2002 results as shown above have prompted me to consider limiting the fund universe for the FTI System.  In 2001, back-testing showed that using the larger universe of funds tripled the return over Fidelity only.  However, there was some selectivity of fund styles in that testing, more or less using the same type of funds Fidelity has, but from different companies. We will be using a smaller universe of funds, in a sense.  This will be accomplished by being increasingly more selective about funds to show on the web site, using additional research techniques, and giving extra consideration to no-fee funds with established records and high ratings.

I encourage those of you who are not yet using this system to strongly consider it.  I am excited about the prospects for this year.

Ben Buckner, PhD