Managers’ Special Report: Buys & Sells – Core Equity Funds

Based on data from April 1, 2010

Core equity funds (Class 3 for newsletter subscribers)

We had no Upgrades this month among core holdings. Mid cap domestic funds continue to dominate and those foreign core funds that remain highly ranked are diversified and continue to lead their Euro-centric counterparts.

For more details about our core holdings, please see last month’s comments.

Summary: Leadership among core funds was remarkably consistent this month and we had no Upgrades this month in our core holdings and very few changes to our core “buy” list.

Managers’ Special Report: Buys & Sells – Speculative Equity Funds

Based on data from April 1, 2010

Speculative equity funds (Classes 1 and 2 for newsletter subscribers)

In our managed accounts and model newsletter portfolio we have lately reduced or eliminated exposure to single industry sector and country-specific funds in favor of regional and aggressive but diversified speculative funds.  (For newsletter subscribers this means favoring Class 2 funds over Class 1 funds.)

This month we continue to reduce exposure to emerging markets funds in favor of domestic small caps. This is a trend that began a few months ago, especially among ETF holdings. As recently as last December, the aggressive component of our portfolios held as much as 50% emerging market funds.  Currently, our speculative holdings are mainly small cap domestic funds, but also include domestic mid-cap growth as well as emerging markets funds.

Summary: We are selling or have sold most sector and country specific funds in favor of more diversified speculative funds and ETFs. We are also holding less emerging markets and more domestic small cap and domestic mid-cap growth funds.

Managers’ Special Report: Buys & Sells – Flexible Income Funds

Based on data from April 1, 2010

We made no changes to our Flexible Income portfolios this month. Our Flexible Income portfolios have enjoyed a good run over the past 12-months and year-to-date, beating the benchmark aggregate bond index handily and earning much higher total returns than one might assume given the current very low yields offered by traditional fixed income. We’ve also enjoyed remarkable stability despite recent volatility in traditional bonds and bond interest rates.

Our Flexible Income portfolios remain broadly diversified and maintain a lower average duration than the benchmark. Please see last month’s post (below) for more details about our flexible income holdings.

Summary: Our flexible income portfolios remain broadly diversified and maintain a lower average duration than the benchmark. We had no Upgrades this month in our flexible income portfolios.

Managers’ Special Report: Tactical Model Perspective

Based on data from April 1, 2010

Current Tactical Model perspective

Our indicators started last month in a cautious stance, indicating that January’s correction could continue before the bull market rally would resume.  March turned out to be very strong and all of the major indexes are at new highs. Our tactical portfolios lagged, but did benefit from the advance as our models became progressively less defensive as the month progressed. Year-to-date, last month’s impressive rally propelled our fully invested portfolios ahead of our tactical portfolios.

We continue to hold defensive measures in our tactical portfolios but acknowledge that the uptrend has resumed and we have made adjustments to allow greater market participation. Since the rally’s resumption, the S&P500 has gone 29 trading sessions without even a 1% correction. Valuations are stretched, the market is “over-bought” and our sentiment models indicate that investors are increasingly complacent. All of that said, we have seen very little selling pressure and until new evidence emerges, we see no reason to fight against the rising tide. We are not fully invested, but we reduced the sensitivity of our hedges to allow greater market participation.

We continue to respect that the rally off the March lows has matured and an eventual 10% to 20% correction is inevitable.  The question is when and from what level. As the market continues to grind higher, we think it is important to participate in harmony with the uptrend. If you have missed this entire rally, you probably don’t want to jump in here with both feet. Instead, you should either consider dollar cost averaging in or include defensive measures to allow you to avoid a potential whip-saw if market volatility resumes. Simply sitting in cash waiting for the next bear market has been a losing proposition over the last year and is probably not a sustainable long-term strategy for most investors.

Summary: The market rally resumed early last month, propelling the major market indexes to new bull market highs. We are not fully invested in our tactical portfolios but we also see no reason to fight the current rising tide and we have adjusted our tactical portfolios to allow greater market participation while still holding some defensive measures.