Selecting Portfolios for SectorSurfer Strategies Don Kinell September 16 th, 2013 1
Review How SectorSurfer is Useful to an Investor 1. Demonstrates the effects of : Rotation to best trending Mutual Fund, ETF, or Stock. Trade alerts are sent when to rotate. 2. Compounding of profits: Total dollars from previous sell applied to next buy. 3. Switching to $CASH during Market downturns: Reduces risk of loss in the Market. 2
Issues For Strategy Asset Selections 1. Avoid Cherry Picked Assets to generate a good score. Today s Cherry s may be tomorrow s Rotten Apples. 2. Avoid groups of assets that rise and fall together. The ideal is to have assets which follow different economic cycles. 3. Avoid Mixing of ETF s Stocks, and Mutual Funds in the same strategy portfolio. Different asset styles have different volatility patterns which make the selection algorithm more difficult. 3
Creating 10 Premium Strategies Why 10 Strategies? A Single Strategy has a reasonable probability to have a down year. At about 5 Strategies, the risk of a single year s overall loss is reduced. It takes at least 4 Strategies to cover most all the Sector categories. Strategies 1 to 4 Fidelity Sector Funds provide diversification of Sectors. Economic cycles favor different sectors at different times. There is no gaming of the selections as all Fidelity Select Funds are held. 4
Strategies 5-10 Strategies 5 to7 ETF Sectors similar to Fidelity Sectors. In some years, ETFs will outperform managed mutual funds. Strategy 8 Broad group of Large, Mid, and Small Cap ETFs and also includes International ETF s. Strategy 9 A mix of 2X Leveraged with 1X Unleveraged Boom or Bust ETFs. Strategy 10 A Mix of Income Oriented Fidelity Funds Including Bond Funds. 5
Strategy # 1 Details Strategy #1 Portfolio List Simply start with an almost alphabetical listing of Fidelity Sectors. Strategies #2 through #4 complete the entire list. 1. Fidelity Select Air Transportation FSAIX 2. Fidelity Select Automotive FSAVX 3. Fidelity Select Banking FSRBX 4. Fidelity Select Biotechnology FBIOX 5. Fidelity Select Brokerage FSLBX 6. Fidelity Select Chemicals FSCHX 7. Fidelity Select Communication Equipment FSDCX 8. Fidelity Select Computers FDCPX 9. Fidelity Select Consumer Discretionary FSCPX 10. Fidelity Select Construction and Housing - FSHOX 6
Fidelity s Generally Alphabetically Selected Sectors First 10 Outperforms any individual Fidelity Select Sector in this strategy: Note the near horizontal lines of $CASH in the 2002 and 2008 sell-offs $CASH is approximately interest from a Money Market Fund Rotated To $CASH in 2002, 2008 a. Lower risk of a large loss compared to SP500: (3.51% vs. 22.2% probability of loss) b. Improved average Gain: (25% per year vs. 10%) Note: Strategy (yellow) Beats SP500 for 3-yrs, 10-yrs, and 25-yrs. 7
Strategy # 9 Details Strategy #9 Portfolio List Old Investment Saying: There is always a Bull Market US Stocks, International Stocks, Bonds, or Gold. Below is a list of ETF s which will cycle through the changing economy. A Banking Sector was added to fill 12 available positions. 1. IEF (1X) (7-10 yr Treasury) and UST (2X) 2. GLD (1X) Gold and UGL (2X) 3. IVV (1X) SP500 and SSO (2X) 4. IWN (1X) Russell 2K and UWM (2X) 5. EFA (1X) International Index and EFO (2X) 6. KBE (1X) Banking and KRU (2X) 8
Boom or Bust ETF Strategy With Leveraged ETF s included, this Strategy can have a large volatility. Note that Storm Grade, S.G.-AQR was selected. Banks have had a strong recovery since 2008 Gold is currently at the bottom of the ladder with no signs of inflation (except in housing) 9
Strategy # 10 Details Strategy #10 Portfolio List Income Oriented 1. Fidelity Spartan Intermediate Treasury Bond FIBIX 2. Fidelity Spartan Long Term Treasury Bond FLBIX 3. Fidelity Balanced FBALX 4. Fidelity Convertible Security FCVSX 5. Fidelity Government Income FGOVX 6. Fidelity Inflation Protection FINPX 7. Fidelity Asset Manager 20% FASIX 8. Fidelity Mortgage Security FMSFX 9. Fidelity Investment Grade Bond FBNDX 10. Fidelity Fidelity Strategic Income - FSICX 11. Fidelity Utilities - FIUIX 10
Fidelity s Income Oriented Funds Income Oriented Funds usually have had good Safety ratings Currently, only Convertible Securities and Balanced show any positive trend. Remaining Bond funds currently show negative trends Rotating this group still beats the SP500 for all years Convertible Securities is the current top fund Inflation and Long Term Treasuries are at the bottom Note: Current Safety Rating is 105. LMRIG Presentation, June 27th, 2013 11
Strategy Contributors ETF Examples Strategy Observations taken from downloaded strategies spreadsheets: Most Strategies have positive contributions from each ETF Having more ETF s in a strategy helps to minimize negative results. $CASH contributes to each category during Market sell-off times. The below ETF selections are generally broad sectors, not hand picked. BLUE identified ETF s are the major contributor, whereas RED identified ETF s are the smallest contributor. ETF GROUP 1: Sectors - Ticker Symbol Cumulative Contribution Through 7/23/13 $CASH XLY XLP XLE XOP XLF VIG KIE KBE 11.60% 30.90% 9.70% 159.50% 31.90% 29.60% % 21.30% -15.80% (ENERGY) (DIVIDEND) ETF GROUP 2: Sectors - Ticker Symbol Cumulative Contribution Through 7/23/13 $CASH XLV PJP IHI IBB XLI PPA IYT XHB 10.40% 10.90% 17.90% 0.70% 105.20% 41.30% 4.30% 46.40% 33.80% MED DEV. BIOTECH ETF GROUP 3: Sectors - Ticker Symbol Cumulative Contribution Through 7/23/13 $CASH XLK FDN SOXX IGV XLB IYZ GLD DBA IYR 12.00% 30.80% 29.10% 28.00% 2.60% -1.40% -7.00% 55.40% 13.50% 96.90% TELECOM REAL EST. ETF GROUP 4: CORE STANDARDS - Ticker Symbol Cumulative Contribution Through 7/23/13 $CASH QQQ DIA SPY IWD IWS MDY IWO IJS IWM EFG EFV EFA 13.40% 117.50% -10.40% 112.10% 2.30% 42.50% 1.40% 31.40% 10.80% 3.40% -4.90% 42.00% 22.50% LRG GRO LRG VAL ETF GROUP 5: 1X & 2X Leveraged - Ticker Symbol Cumulative Contribution Through 7/23/13 $CASH IEF GLD IVV IJS EFA KBE UST UGL SSO UWM EFO KRU 8.20% 5.00% 63.10% -9.60% 97.50% -3.70% % % 123.40% 36.70% 25.60% 13.60% 11.90% LRG BLEND 2X GOLD 12
Prob. SECTOR Of LossSURFER 22.17% 10 STRATEGIES 3.51% 3.24% 3.35% 6.73% 2.87% 2.33% 6.61% 4.12% 0.41% 0.55% Sharpe Ratio NOTE: NO LOSING 0.41 YEAR 0.91!! 0.88 1.04 0.62 0.84 0.84 0.78 0.76 1.24 1.23 SectorSurfer - Each Strategy, Year-By-Year Results Max UPDATED: Drawdown 9/13/13 55.30% 26.80% 25.70% 25.50% 27.50% 26.80% 27.40% 27.30% 20.80% 38.10% 11.50% Real Drawdown 53.20% FIDELITY 24.40% FIDELITY 12.20% FIDELITY 11.20% FIDELITY 22.80% ETF 2% ETF 27.10% ETF14.40% ETF9.00% ETF9.40% FIDELITY 8.60% Max D.D. Date 9-Mar-09 26-Aug-10 Sectors Sectors 8-Aug-11 Sectors 3-Oct-06 28-Dec-12 Sectors 30-Aug-10 Hi-VOL Hi-VOL 1-Jul-10 10-May-04 Hi-VOL 22-Jan-08 Hi-VOL Leveraged 6-Jul-10 16-Aug-07 Sectors Sectors Sectors Broad Grp 6 1X ETFs Income Real D.D. Date 2-Mar-09 1-Jul-10 1-Jul-10 1-Jun-12 2-Jan-13 1-Sep-10 1-Jul-10 1-Jun-05 1-Dec-11 2-Aug-10 1-Jun-10 FIRST 10 SECOND 10 THIRD 10 FOURTH 10 FIRST 10 SECOND 10 THIRD 10 FOURTH 10 6 2X ETFs Oriented RISK PROFILES S.G. - AQR CURRNET HOLDING = FBIOX FSHPX FBMPX FNARX KBE IBB FDN IWO KRU FCVSX TYPE S&P 500 Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy ANNUALIZED RETURN PERCENTAGES Prob. Of Loss 22.17% 3.51% 3.24% 3.35% 6.73% 2.87% 2.33% 6.61% 4.12% 0.41% 0.55% DATES S&P 500 Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy Strategy Sharpe All Years Ratio 10.15 0.41 24.97 0.91 25.32 0.88 20.50 1.04 17.81 0.62 14.56 0.84 16.38 0.84 14.84 0.78 17.25 0.76 25.28 1.24 13.85 1.23 Max Drawdown 55.30% 26.80% 25.70% 25.50% 27.50% 26.80% 27.40% 27.30% 20.80% 38.10% 11.50% 10 Years 7.29 17.53 20.40 19.00 12.47 19.68 19.50 19.39 13.93 29.60 14.76 Real Drawdown 53.20% 24.40% 12.20% 11.20% 22.80% 2% 27.10% 14.40% 9.00% 9.40% 8.60% 5 Years 8.43 22.57 13.34 20.41 13.18 16.01 25.40 24.24 16.77 41.95 16.98 Max D.D. Date 9-Mar-09 26-Aug-10 8-Aug-11 3-Oct-06 28-Dec-12 30-Aug-10 1-Jul-10 10-May-04 22-Jan-08 6-Jul-10 16-Aug-07 3 Years 16.86 26.87 15.35 19.95 5.60 20.13 40.75 26.60 17.78 45.32 21.39 Real D.D. Date 2-Mar-09 1-Jul-10 1-Jul-10 1-Jun-12 2-Jan-13 1-Sep-10 1-Jul-10 1-Jun-05 1-Dec-11 2-Aug-10 1-Jun-10 1 Year 17.78 36.22 2.06 28.70 8.55 26.62 55.55 15.15 27.49 39.03 12.93 Y.T.D. CURRNET 19.65 HOLDING = FBIOX 30.64 FSHPX 25.99 FBMPX 24.89 FNARX 21.29 20.08 KBE 47.11 IBB 19.19 FDN 19.39 IWO 48.83 KRU FCVSX 8.06 ANNUALIZED RETURN PERCENTAGES DATES 2012 S&P 15.97 500 Strategy 25.65 Strategy (3.47) Strategy 23.37 Strategy (11.60) Strategy 12.00 Strategy 58.06 Strategy 22.72 Strategy 23.78 Strategy 35.93 Strategy 18.12 All Years 2011 2.10 10.15 (3.44) 24.97 (2.44) 25.32 (8.61) 20.50 (2.17) 17.81 14.54 14.56 4.36 16.38 7.78 14.84 4.04 17.25 18.42 25.28 27.27 13.85 10 Years 2010 14.88 7.29 29.84 17.53 31.69 20.40 4 19.00 44.48 12.47 11.40 19.68 11.44 19.50 39.75 19.39 19.24 13.93 45.60 29.60 11.25 14.76 5 Years 2009 26.45 8.43 33.38 22.57 18.79 13.34 27.40 20.41 21.59 13.18 21.48 16.01 13.77 25.40 33.34 24.24 22.07 16.77 42.94 41.95 20.29 16.98 3 Years 2008 (36.99) 16.86 (7.27) 26.87 19.88 15.35 (4.34) 19.95 (5.89) 5.60 (2.29) 20.13 0.11 40.75 11.06 26.60 (3.37) 17.78 20.99 45.32 3.87 21.39 1 Year 2007 5.43 17.78 19.33 36.22 24.09 2.06 4.61 28.70 22.84 8.55 16.68 26.62 9.80 55.55 13.46 15.15 10.54 27.49 27.57 39.03 13.98 12.93 2006 15.78 16.76 32.38 4.23 14.96 25.92 15.11 35.33 21.44 27.57 17.15 Y.T.D. 2005 4.91 19.65 15.62 30.64 40.54 25.99 33.27 24.89 10.77 21.29 40.17 20.08 6.98 47.11 (9.70) 19.19 (4.62) 19.39 1.57 48.83 2.61 8.06 2004 2012 10.88 15.97 7.99 25.65 4.24 (3.47) 37.48 23.37 13.40 (11.60) 29.13 12.00 27.19 58.06 15.49 22.72 19.19 23.78 19.50 35.93 17.76 18.12 2003 2011 28.66 2.10 28.50 (3.44) 64.59 (2.44) 39.53 (8.61) 33.31 (2.17) 27.42 14.54 43.42 4.36 44.99 7.78 47.46 4.04 30.58 18.42 19.16 27.27 2002 2010 (22.10) 14.88 1.71 29.84 20.09 31.69 5.84 4 (0.84) 44.48 (0.47) 11.40 0.29 11.44 (7.27) 39.75 (1.82) 19.24 8.14 45.60 2.24 11.25 2001 2009 (11.92) 26.45 (0.09) 33.38 4.05 18.79 4.05 27.40 4.05 21.59 4.05 21.48 (0.61) 13.77 4.05 33.34 4.05 22.07 18.86 42.94 4.05 20.29 2000 2008 (9.13) (36.99) (2.61) (7.27) 51.09 19.88 23.87 (4.34) 0.53 (5.89) 3.23 (2.29) 12.08 0.11 (8.69) 11.06 1.02 (3.37) 20.99 7.23 3.87 1999 2007 21.02 5.43 81.51 19.33 82.83 24.09 22.61 4.61 113.18 22.84 4.31 16.68 14.27 9.80 22.54 13.46 60.59 10.54 27.57 23.53 13.98 1998 2006 28.56 15.78 86.99 16.76 14.32 32.38 28.38 4.23 42.10 14.96 25.92 15.11 35.33 30.50 21.44 27.57 31.07 17.15 1997 2005 33.35 4.91 37.73 15.62 20.53 40.54 26.29 33.27 11.06 10.77 40.17 6.98 (9.70) 34.43 (4.62) 1.57 11.97 2.61 1996 2004 22.97 10.88 19.33 7.99 29.22 4.24 29.44 37.48 9.36 13.40 29.13 27.19 15.49 21.06 19.19 19.50 9.52 17.76 1995 2003 37.55 28.66 52.53 28.50 80.63 64.59 17.88 39.53 51.50 33.31 27.42 43.42 44.99 47.46 30.58 28.30 19.16 1994 2002 (22.10) 1.30 15.50 1.71 8.31 20.09 8.82 5.84 22.99 (0.84) (0.47) 0.29 (7.27) (1.82) 8.14 (2.35) 2.24 2001 (11.92) (0.09) 4.05 SectorSurfer 4.05 User Group 4.05Presentation September (0.61) 16, 2013 4.05 4.05 18.86 13 4.05
ANNUALIZED RETURN AVERAGEPERCENTAGES Strategy SectorSurfer Strategy - Strategy 10 Strategy RESULTS Combined Results: 1994-2013 YTD DATES S&P 500 Strategy Strategy Strategy Strategy Strategy Strategy 17.25 25.28 13.85 All YearsEACH YEAR 10.15 24.97 25.32 20.50 17.81 14.56 16.3 10 Years 7.29 17.53 20.40 19.00 12.47 19.68 19.5 13.93 29.60 14.76 18.63 << 10yr Avg of all 10 16.77 Never a Losing 41.95 16.98 5 Years 21.098.43 << 5yr Avg 22.57 of all 1013.34 20.41 13.18 CURRENT 16.01 VALUE 25.4 17.78 Year with 45.32 this 21.39 3 Years SURFER16.86 DELTA TO: 26.87SURFER15.35 SURFER 19.95 $4,052,227 5.60 20.13 40.7 1 Year 17.78 36.22 2.06 28.70 8.55 26.62 55.5 27.49 39.03 12.93 STRAGEY S&P 500 STRAGEY STRAGEY group of 10 Strategies FROM A $100,000 INVESTMENT 19.39 48.83 8.06 Y.T.D. 26.55 19.65 6.90 30.64 1.265 25.99 $4,052,227 24.89 21.29 20.08 47.1 23.78 35.93 18.12 2012 20.46 15.97 4.49 25.65 1.205 (3.47) $3,202,152 23.37 (11.60) 12.00 58.0 4.04 18.42 27.27 2011 5.982.10 3.88 (3.44) 1.060 (2.44) $2,658,358 (8.61) (2.17) 14.54 4.3 19.24 45.60 11.25 2010 28.47 14.88 13.59 29.84 1.285 31.69 $2,508,477 4 44.48 11.40 11.4 22.07 42.94 20.29 2009 25.51 26.45 (0.95) 33.38 1.255 18.79 $1,952,593 27.40 21.59 21.48 13.7 (3.37) 20.99 3.87 2008 3.28 (36.99) 40.27 (7.27) 1.033 19.88 $1,555,789 (4.34) (5.89) (2.29) 0.1 10.54 27.57 13.98 2007 16.295.43 10.86 19.33 1.163 24.09 $1,506,453 4.61 22.84 16.68 9.8 21.44 27.57 17.15 2006 21.09 15.78 5.31 16.76 1.211 32.38 $1,295,428 4.23 14.96 25.92 15.1 (4.62) 1.57 2.61 2005 13.724.91 8.81 15.62 1.137 40.54 $1,069,850 33.27 10.77 40.17 6.9 19.19 19.50 17.76 2004 19.14 10.88 8.26 7.99 1.1914.24 $940,767 37.48 13.40 29.13 27.1 47.46 30.58 19.16 2003 37.90 28.66 9.24 28.50 1.379 64.59 $789,651 39.53 33.31 27.42 43.4 (1.82) 8.14 2.24 2002 2.79 (22.10) 24.89 1.71 1.028 20.09 $572,643 5.84 (0.84) (0.47) 0.2 4.05 18.86 4.05 2001 4.65 (11.92) 16.57 (0.09) 1.0474.05 $557,094 4.05 4.05 4.05 (0.6 1.02 7.23 2000 8.78 (9.13) 17.91 (2.61) 1.088 51.09 $532,335 23.87 0.53 3.23 12.0 60.59 23.53 1999 42.54 21.02 21.52 81.51 1.425 82.83 $489,391 22.61 113.18 4.31 14.2 30.50 31.07 1998 38.89 28.56 10.33 86.99 1.389 14.32 $343,343 28.38 42.10 0.0 34.43 11.97 1997 23.67 33.35 (9.68) 37.73 1.237 20.53 $247,199 26.29 11.06 0.0 21.06 9.52 1996 23.59 22.97 0.62 19.33 1.236 29.22 $199,889 29.44 9.36 0.0 28.30 1995 46.17 37.55 8.62 52.53 1.462 80.63 $161,741 17.88 51.50 0.0 (2.35) 1994 10.651.30 9.35 15.50 1.1078.31 $110,654 8.82 22.99 0.0 INITIAL INVESTMENT = $100,000 14
2013 YTD RESULTS: SectorSurfer 10 Premium Strategies RESULTS AS OF SEPTEMBER 13, 2013 (CURRENT HOLDINGS) 2013 LIFETIME Symbol Name STRATEGY STRATEGY STRATEGY Strat MKT VALUE PERCENT SINCE END Number $10K Invest GAINED 2000 FIDELITY SECTORS #1 FBIOX Fidelity Select Biotechnology $13,000.04 3% $56,313 #2 FSPHX Fidelity Select Health Care $12,594.35 25.94% $166,392 #3 FBMPX Fidelity Select Multimedia $12,886.61 28.87% $91,354 #4 FNARX Fidelity Select Natural Resources $11,577.85 15.78% $42,535 ETF SECTORS #5 KBE SPDR S&P Bank ETF $12,008.77 20.09% $73,788 #6 IBB ishares Nasdaq Biotechnology $14,327.88 43.28% $84,870 #7 FDN First Trust Dow Jones Internet Index $11,911.47 19.11% $66,735 ETF BROAD CATEGORIES AND STYLES #8 IWO ishares Russell 2000 Growth Index $12,187.72 21.88% $50,221 ETF "BOOM OR BUST" 1X AND 2X LEVERAGED #9 KRU ProShares Ultra 2000 Growth $14,833.48 48.33% $199,998 #10 FIDELITY INCOME ORIENTED FUNDS FCVSX Fidelity Convertible Securities $10,840.72 8.41% $49,522 INVESTED AMOUNT EACH STRATEGY = $10,00 2013 AVERAGE STRATEGY GAIN = 26.17% LIFETIME STRATEGY $GAIN = $881,728 2013 SP500 GAIN = 19.65% LIFETIME SP500 $GAIN = $147,708 STRATEGY OUTGAINS SP500 2000 Present: $882K to $148K since 2000 15
Conclusions The main objectives were to create a group of Strategies when taken together: 1. Outperform the overall Market as defined by the SP500 through all time frames 2. On a year-by-year basis, there would be no overall or at least minimum losses. Objectives were achieved Secondary objectives were: 1. Minimize my time in evaluating ETF s and Mutual Funds to determine when and which ones to rotate or sell. Currently this takes many hours per week and per month. 2. Learn about new techniques in technical trading. Still Working on the Time Factor The SS Sandbox still keeps me busy with new ideas. 16