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3rd Quarter Review 2015

FundX Commentary

The third quarter of 2015 was the most volatile quarter for stocks in four years. Stock markets around the world sold off, but some markets held up better than others. U.S. markets were a bright spot. The S&P 500 lost 6.4% for the quarter, while the MSCI All-Country World index lost 9.4% and the MSCI Emerging Markets index fell 17%. 

The equity Upgrader Funds can invest globally, but the Funds primarily held U.S. large-cap funds in the third quarter. This exposure helped the Funds outperform global benchmarks like the MSCI All-Country World Index, but the Funds lagged U.S. indexes like the S&P 500 because we’d bought a few foreign and smaller-cap funds that had strong performance in the second quarter. When these funds fell out of favor, we cut our losses and replaced them. 

Interest rates fell during the quarter, despite fears the Federal Reserve would raise rates. That was good news for Treasury and mortgage-backed bonds, and the Barclays Aggregate Bond index, which is primarily made up of government bonds and Treasuries. But it punished more diversified strategies like ours, which include exposure to corporate, strategic, and high yield bonds, most of which lost ground in the third quarter. INCMX and TOTLX also had some exposure to better performing dollar-hedged world bonds and mortgage-backed securities during the quarter.

Equities Flexible Income

What Changed?

The Funds started the quarter with a small allocation to foreign funds, but as foreign markets sold off, we cut our losses and sold most of these positions in favor of U.S. funds that held up better in the correction.

Our Funds avoided the substantial losses that many foreign markets, particularly emerging markets like China, experienced during the quarter.

We also trimmed our exposure to small- and mid-cap funds, which didn’t hold up as well as large-cap funds. By quarter-end, the Funds were more focused on U.S. large-cap funds.  

What Stayed the Same?

Most of the Funds’ core U.S. large-cap holdings held up relatively well in the third quarter and remained in the portfolio all quarter (many of these funds have been held all year).

The Funds’ health care and technology-focused holdings also remained in the portfolio. FUNDX and TACTX take smaller positions in these funds, which helped limit the damage when biotech and health care sold off in September.

TACTX continued to have a small position in a more defensive, total-return fund. TACTX isn’t always fully invested and in the third quarter, the portfolio was hedged at times.

How We’re Currently Positioned

The Funds are designed for investors who want to participate in global stock market growth, and since U.S. markets have outperformed, the Funds are mostly invested in U.S. funds.

HOTFX holds aggressive funds that had significant exposure to health care, technology and consumer cyclical stocks. FUNDX and TACTX hold mostly diversified U.S. large-cap growth funds with limited exposure to concentrated funds.

We know that markets change, and the funds we own today won’t always be in favor, and we are prepared to change the Funds’ portfolios when market leadership changes.

What Changed?

High-yield and global bonds fell in the third quarter. The Flexible Funds had limited exposure to these areas, which helped the Funds avoid the steep losses that high-yield and world bonds experienced.

We sold some of the Funds’ high-yield and world bond positions and bought into mortgage-backed securities and total-return funds, which had stronger recent returns. TOTLX now has no exposure to world bonds.

By quarter-end, the Funds had more exposure to higher-quality U.S. bonds.

What Stayed the Same?

The Flexible Funds continued to have significant exposure to intermediate-term bonds, which held up relatively well in the third quarter, as well as strategic, or “go anywhere”, bond funds.   

Both Funds also held total-return funds, which aren’t entirely invested in bonds and typically have less interest-rate risk.  We continued to avoid Treasuries and long-term bonds, which tend to be interest-rate sensitive.

The Funds still hold a few select high-yield bonds, and INCMX has a small allocation to dollar-hedged world bond funds. The Funds had no exposure to emerging market bonds, which were hit hard in the third quarter.

How We’re Currently Positioned

The Funds own a diversified mix of bonds, including higher-quality, strategic, and high-yield bonds as well as mortgage-backed securities.

Both Funds also have exposure to total-return funds, which aren’t entirely invested in bonds and typically have less credit and interest-rate risk. (TOTLX has substantially more exposure to total-return funds.)
The risk of higher interest rates continues to plague the bond market, but our active strategy is designed to adapt to interest-rate changes, and we are prepared to change the Funds’ portfolios in response to changing bond markets.


The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The Barclays Aggregate Bond Index is an unmanaged index generally representative of intermediate-term government bonds, investment grade corporate debt securities and mortgage-backed securities. The MSCI Emerging Markets Index is a market capitalization index that is designed to measure equity market performance in global emerging markets. The MSCI All Country World Index (ACWI) is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. You cannot invest directly in an index.

Diversification does not assure a profit or protect against loss in a declining market.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data quoted current to the most recent quarter- and month-end may be obtained by clicking here.

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