Explanation about data for the Fund Trading Indexes System

The funds considered for calculation of trading indexes are selected from a wide universe of funds, being those available in mutual fund brokerage accounts -- over 12,000 funds currently, in hundreds of fund families. They are screened in various ways, resulting in considering perhaps fewer than 1,000 as potential funds for our list. Some of the criteria used to screen funds are given below.

If a fund is listed by Morningstar and other such sources as available in Ameritrade, Fidelity, Harris Direct (Pershing), and Scottrade brokerage accounts, it passes the first screen. Only funds available to individual investors are considered. Most funds with sales charges and redemption fees, and funds requiring minimum balances over $100,000 in IRAs are excluded. Funds closed to new investors are not used unless they are open in IRA retirement accounts.

Highly volatile funds (those whose price fluctuates a lot) can be aggravating to use with the FTI System, as the volatility can contribute to excess trading, which can deteriorate profits. We have developed a volatility measure called the risk factor (RF), which is a composite of standard deviation of the monthly returns and other variables reflecting weekly fluctuations. Funds having volatility above our limits are not included in our inventory.

The funds in our inventory include a selection of funds from 20 different fund styles (asset classes). These fund styles are those that back-testing and actual application have shown work best with this system. Certain fund styles and individual funds that have proved to be troublesome in the FTI System are not used.

Other criteria devised especially for the FTI System are used to screen funds. They are considerations intended to provide the best choices of funds for this unique system of trading. Some of these are more completely discussed in sections of the website available to paid subscribers. Others are proprietary.

After the above screening, we have well over 100 funds at a given time with TIs and RFs calculated. This number is not only manageable, but also a number that seems to give as good a result as having hundreds or thousands in inventory. They represent a well diversified group of highly rated and top performing funds from many fund families and represent the fund styles that have proved to work best with this system.

We also search regularly for funds that meet our screening criteria and which may be trending strongly. These are added into the base inventory to assure that we have the top trending funds at any given time. Thus, there is a fairly stable set of funds that changes very slowly, and another smaller group of selected funds that changes more frequently. Both together comprise the final inventory of funds. Funds are dropped from the inventory occasionally, for various reasons (closed to new investors, redemption fees added, down-rated by others, long-term poor performance, and other reasons).

We provide separate lists of TIs for Fidelity, T. Rowe Price, and Vanguard. Funds in these companies are tracked separately from the brokerage-available list for those investors who have mutual fund accounts with these companies. Most brokerages have access to these funds as well. Initial screening is performed on these funds, similar to that of the brokerage list, eliminating highly volatile funds or those that exceed our limits on redemption fees.

As part of the service to paid subscribers, trading indexes and risk factors are provided each week for the Fidelity VIP annuity and the VALIC retirement annuity funds. For other annuity investments, the user might look for mutual funds that may appear in our list from which the annuity funds might be "cloned". A mutual fund made available through an annuity will have the same TI as one sold through the respective fund company or a mutual fund brokerage company, even though the pricing is different.

You probably will not find most of the funds in your 401k and other such retirement plans on our list. These plans typically offer such limited choices, with very little broad diversification, that the probability of one of the choices being on our list is very low, considering that our "top 40" represents less than 1% of the several thousand funds considered for TI calculations.

Back-testing proved that exchange traded and closed end funds will not work with this system. The testing showed either flat or negative returns for the same years where significant positive returns were achieved using conventional "open end" mutual funds. The main reason for this inferior performance is the higher volatility of these funds as compared to mutual funds. Trades are signaled more frequently, and losses can be significant during the shorter holding times of the funds. Other factors, such as lack of information, low trading volume, low assets of many of the funds, lack of choices in some fund styles, and the general need to monitor them more closely throughout the week cause them to be undesirable for use in the Fund Trading Index System. They behave somewhat like stocks, which do not work in this system either.

We do not limit the fund choices to any one fund company or fund investment style. We have no philosophy of investment, other than to recommend buying the funds having the top TIs, and holding them until the TIs change enough to signal a trade using the criteria explained in our system. The TIs are our main guide and route to making higher profits in any market environment.