The Monthly Upgrader Portfolio (MUP)
Appearing on page 2 of each monthly issue
of NoLoad FundX newsletter, the Monthly
Upgrader Portfolio (MUP) is a diversified model
portfolio containing equity mutual funds. It
is designed to provide long-term growth for
investors willing to accept moderate market
risk. The MUP applies the same Upgrading
strategy DAL Investment Company uses for
clients and shareholders. This active strategy
continually steers investors to the mutual funds
demonstrating strength in the current market.
- Strong Performance - A 10+ year track record
through both bull & bear markets demonstrates
consistent results.
- Easy to Follow - Only an hour or so a month is all
all you need to apply the clear monthly instructions
on which funds to sell and which to buy.
- A Real-World Portfolio - Includes funds that are
widely available on broker platforms and incorporate
a 90-day hold to avoid typical broker restrictions
or fees.
- Tax Efficiency - Most realized gains have been long
term, resulting in favorable after-tax returns.
Bottom Line: Performance
The Upgrading approach, as applied in the Monthly
Upgrader Portfolio (MUP) has provided remarkably
consistent returns over the years. Although we don’t
expect to beat the market in every period, the MUP
exceeded the returns of the S&P 500 Index in nine out
of the past ten years. And, when it did outperform,
it did so by a wide enough margin to far surpass the
benchmark over the long-term.
An investor that started following the MUP with a
$100,000 account in January of 2000 would have
ended the decade with $178,389, a return of over 78%. Had you bought the index instead and held it
for that time, you would have lost almost $9,200 or
9.2%. That’s a difference of over $87,000.
Getting Started with the Monthly Upgrader Portfolio
The MUP invests primarily (about 70%) in core Class
3 funds, but also includes roughly 30% exposure to
more aggressive funds from Classes 1 and 2. See an
example of the MUP on page 4.
At first glance, the MUP may seem overweight in
speculative funds, but look at the percentage column
and you’ll see that the Class 1 and 2 positions are
much smaller (approximately 2 - 5% each) than the
Class 3 holdings (5 - 10% each). Smaller positions in
the more volatile funds limits the overall risk.
Start by buying funds ranked in the top 10% of their
Class. These are shaded in green, both in the MUP
and on the back page FundXpress section of the
newsletter. Then hold funds as long as they rank
within the top 30% of funds in their Class. Funds that
rank as HOLDS are shown with no shading, both in the
MUP and again on the back page.
If you’re new to this portfolio, you won’t necessarily
want to buy all the funds in the current portfolio. The
MUP is an ongoing portfolio that includes both funds
ranked as BUYS, as well as funds currently ranked as
HOLDS (these funds were ranked as BUYS when they
were originally purchased, and have since dropped
into the HOLD category.) Use FundXpress to replace
any funds ranked as HOLDS.
Expect to be Different - Your portfolio will differ
slightly from the current MUP. That’s OK. DAL
has hundreds of private client accounts and they
all vary to some extent because of cash flows and
the timing of each purchase. Nevertheless, we find
all Upgrading accounts have similar performance
over time. We expect that subscribers will also have
somewhat different portfolios, depending on when
they started following the MUP, which broker they
use, and the size of their portfolios.
Smaller Accounts - The MUP does require a relatively
large portfolio since it holds so many funds. (The MUP
actually holds fewer funds than most of DAL’s client
accounts.) Holding more funds provides additional
diversification, potentially limiting volatility. Perhaps
more importantly, it allows us to make changes
more incrementally, turning over a smaller portion
of the portfolio at a time. If you’re unable to spread
your account over this number of funds, take fewer
positions. You may choose to focus solely on core
(Class 3) funds and avoid Classes 1 and 2 altogether.
Shifting Market Leadership
The chart above demonstrates how strength rotates
among different areas of the equity markets over
time. The MUP’s Upgrading approach identifies
where current strength lies by focusing on near-term
performance. By following current market leadership,
Upgraders take advantage of this rotation.
Five indexes are shown: the broadly representative S&P 500 and Dow Jones Industrials, the tech-heavy
NASDAQ, the small cap Russell 2000, and the foreign
EAFE (Europe, Australasia, Far East). Three of those
five (Russell 2000, EAFE and NASDAQ) are higher risk
than the MUP. Nevertheless, the MUP outperformed all
of these indexes over the past ten years by aligning with
what’s working in the current market environment