Fidelity Focused Stock (FTQGX) has been a very strong performer. Stephen DuFour has managed Fidelity...
No-Load Funds Make the Best Portfolios
07/12/2012 11:54 am EST
A market timing strategy using no-load mutual funds is how Stephen McKee believes the best profits can be made, and he shares his process and a couple of picks here.
I'm here with Stephen McKee and we're talking about using no-load mutual funds to build a portfolio, and timing it to the right aspects to get the most return. So Stephen, how do you use no-load mutual funds to try and kind of time the market?
We do a couple of things. We do time the market, and then we also use the no-load mutual funds and a selecting process.
So the idea is that when the market's going up, they're all going up, but we use some relative strengths and other measures to say OK, we want to be in this one, and this one, and this one. And then when the market's turning over, we want to raise cash; we don't want to follow it up and then follow it all the way back down.
And how long do you typically hold a no-load mutual fund until you think it may be time to change?
It's a good question. In our newsletter, we have about four portfolios, and over the last few months we've been selling a couple of positions, and they're actually long term-probably half of them have been long term capital gains and then the others are short term capital gains.
So we're not hyper-switchers; we're not in this week and out next week, or in this month and out next month. We try to take the real world into account, where you've got your short-term redemption charges; people do pay taxes, and then you also have your transaction costs.
Long ago, we designed this relative strength risk-adjusted performance model to take the real world into account and try to stay with the funds as long as they're outperforming the market and their peers-and trends actually do tend to stay in place for many, many months-and then the same with the funds.
How much does the previous record of the fund manager play into the decision about which fund you're going to go with?
We actually try to ignore it. To a certain extent, if the manager is doing great, they're going to show up at the top of our rankings.
What we don't want to do is say people are familiar with names like Fairholme or Legg Mason Value Trust and then various other names. So it's not a surprise, but in our system, we track them, we had money with them, but as they began to underperform we ended up selling them all.
Alright, and then finally, how narrow are some of these funds that you're working with? Are they specific sectors? Are they the broad market? What is it?
We do track the sectors, but we tend not to actually make recommendations. In the back pages of our newsletter, I know subscribers like it, and we do have a separate section for the sectors, but for the most part our portfolios are broadly diversified.
Give us an example of a mutual fund or a no-load fund right now that you're liking that maybe you're investing in.
Well, I can tell you that we like the large-cap area. For the past couple of years, we talked earlier about the long-term capital gains; we've been selling the small-cap area. We like the growth and income area, and also the hybrid funds; a couple of names might be the Vanguard Wellesley. Another one might be, oh there's a Aston Monteg balanced fund that we like.
And where do I find information about.obviously with your newsletter you can go to your newsletter and find out what you're invested in. But is there a general place that I can find out about all no-load mutual funds?
Sure. Sure. There are tons of ranking and sorting services, and of course you can certainly Google it online and do it that way as well.
What we do that's unique is we will actually make specific recommendations. We have a set portfolio, so it's not like we've got a list of buy these 100. But we actually pick and choose and have a portfolio.
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