| Model Portfolios: | June | Y-T-D | 12 Mos. | 3 Years | 6 Years |
| Performance Xtender | 2.0 % | -0.7 % | 9.5 % | 71.4 % | 259.2 % |
| Max Xtender | 0.1% | -11.1 % | 7.2 % | 127.4 % | 553.3 % |
| Compared to Traditional Strategy: | |||||
|---|---|---|---|---|---|
| Buy and Hold (S&P 500) | -0.4% | -1.8 % | 6.1 % | 24.0 % | -2.3 % |
Performance Analysis
June: A "Flat" Month
The market has rallied now for 9 weeks after setting a bottom for the extended correction in late April. Most of the upside in this rally, however, was seen in the first 4 weeks ... the month of May. By contrast, the market has mostly tread water during June, ending the period down 0.4% or essentially unchanged for the month. For the first six months of the year, the market has also gone essentially nowhere -- dropping a mere 1.8% in value as measured by the S&P 500 Index.
First Six Months Are Also Flat: You can see from the tracking report above that both the Performance Xtender and Max Xtender model portfolios marginally out-performed the S&P 500 in June. Year-to-date, the riskier Max Xtender model has substantially under-performed since its logic has been whipsawed by the back-and-forth, seesaw action in the market since the first of the year. Once the market resumes a strong trend, either up or down, the "leveraged" Max Xtender will quickly catch up in performance and surge ahead.
Solid Performance Over 12 Months: For the past 12-month period, our models have performed just a bit better than the S&P 500. This is about the performance we would expect from these two models since the past 12-month period has only seen about 3 months of strongly trending positive movement. During periods of choppy, sideways action (such as we have seen for 9 of the past 12 months) our models struggle to stay even with the S&P 500. But the 3 strong rally months (out of 12) were enough to allow our models' natural over-performance to make up for their under-performance during the 9 months of seesaw action.
We Strongly Out-Perform Over Longer Periods: Looking at the 3-year and 6-year trackrecord of our two Model Portfolios, you will see their real benefit over longer periods of time. Both models have substantially out-performed the market during these longer periods. The simple reason for this is the fact that they not only avoided losses during the bear market periods, but actually made money invested in an "Inverse Index Fund" that goes up in value during bear markets. In addition, our models also significantly out-performed the market during the strong, bull market periods. In the end, they have avoided loss and "built profits on top of profits" which is what allows the magic of compounding to kick-in and accelerate your rate of portfolio growth.
Three Year Performance Graph (As of July 1, 2005)
Accelerated Performance: The past three years have mostly been a Bull Market period-- and the Buy and Hold Investor is up only 24%. Our Performance Xtender is up 3 times that much at 71%. The Max Xtender model is up 5 times more at 127%.
Market Commentary
Since the beginning of the year, the market has been trapped within a “trading range” between about 1220 on the S&P 500 Index and 1165 (see red lines on chart below). The market’s most recent bottom was in late April and the market has been in rally mode for 9 weeks since then. But when the S&P 500 traded back up to the 1220 level in mid-June, it respected the top of the trading range and reversed.
The question now is whether the market can “breakout” of this extended trading range and continue the bull market. Our analysis of the market’s underlying technical indicators show that the rally begun in later April has been built upon a strengthening base of supply vs. demand for stocks. In our analysis, this rally attempt has a better chance of breaking out eventually than the market’s previous attempt in February and March.
As a result, we think the market’s recent reversal will turn out to be just a minor correction. If we are correct, then we should expect to see the market break out to new highs probably within the coming month.
Model Portfolios Move to More Bullish Posture: The objective logic in our investment models has also recognized the increasingly bullish scenario by ratcheting up allocations to a more bullish posture. The Performance Xtender moved this month to a fully invested posture and currently holds 20% allocations in two individual sectors that have performed very well – real estate and energy. The Max Xtender stepped up from being 100% invested to a partially-leveraged 150% posture.
Mid-cap Stocks Continue to Out-Perform: Our models continue to hold positions in Mid-cap stock funds which have been the performance leader. Small-cap stocks also made a strong bid for leadership during June, so we may see a switch during July from Mid-caps to Small-caps.
Large-cap stocks and the technology sector continue to under-perform. At the same time, the breadth of participation in this rally is showing signs of weakening. This, plus the continued anemic trading volume, suggests that we have moved into the final stage of the bull market that began in March of 2003. We have commented before that we don’t expect this bull market to carry on much beyond the end of this year … and believe that it could end even before December 31st.
So the coming summer rally we expect to see may turn out to be the last hurrah for some time. But even if we move into a new bear market cycle, your investment portfolio can still post decent returns because of the capabilities of our two "Performance Series" model portfolios.
Recommended Model Portfolio Allocations
Model Portfolio: 'Performance Xtender'
| Current Recommended Portfolio Allocations | Rydex Funds | ProFunds | ETFs | |||
|---|---|---|---|---|---|---|
| Allocation | Ticker | Allocation | Ticker | Allocation | Ticker | |
| LargeCap Fund | 20% | RYZAX | 20% | SLPIX | 20% | SPY |
| MidCap Fund | 40% | RYAVX | 40% | MDPIX | 40% | MDY |
| Energy Sector Fund | 20% | RYEIX | 15% | ENPIX | 20% | XLE |
| Real Estate Fund | 20% | RYHRX | 15% | REPIX | 20% | ICF |
| Corporate Bonds Money Market |
If you are following this Model Portfolio with ProFunds investments, you should keep the remaining 10% balance in a Money Market account. | |||||
Model Portfolio: 'Max Xtender'
| Current Recommended Portfolio Allocations | Rydex Funds | ProFunds | ETFs | |||
|---|---|---|---|---|---|---|
| Allocation | Ticker | Allocation | Ticker | Allocation | Ticker | |
| MidCap Fund | 50% | RYAVX | 50% | MDPIX | 150% | MDY |
| Lev'd MidCap Fund | 50% | RYTNX | 50% | UMPIX | - | - |
| Corporate Bonds Money Market |
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