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SELECTING, BUYING AND
HOLDING THE BEST MUTUAL FUNDS
A major cornerstone of Appel strategic portfolio management is investing in
mutual funds and other equity related investments that are selected on the
basis of relative strength, that is return factored by risk.
In our view, risk management is a more significant factor in successful
investment and responsible management, than strategies designed to produce
maximum return with risk containment as only a secondary consideration. There are three basic approaches that the Appel companies utilize:
Varying the amount of investment positions as market conditions
change.
The Appels have developed a number of market forecasting tools based upon
economic and interest rate conditions and upon the behavior of the stock
market itself. The overall strategy is to maintain relatively large
investment positions when investment models suggest positive market
outlooks, and to reduce invested positions significantly, - sometimes even
totally, - when models indicate high risk levels in the stock and/or bond
markets.
Carefully monitoring volatility levels of equity portfolios.
Our research indicates that mutual funds of lower volatility do, over the
long run, produce returns equal to more volatile mutual funds but with
considerably less risk. Even a program of selecting mutual funds by relative
strength performs best when lower volatility mutual funds are employed.
Investment instruments are carefully
evaluated analyzing performance during both rising and falling market
periods, to measure both profit
potential and risk level. It goes without saying, of course, that there are
times when more volatile funds prove to be both highly exciting and highly
profitable but on balance, slower and steadier is usually considered to work better in the long run.
Diversification to maintain portfolio
balance and to reduce risk levels.
We recommend, for all but the most aggressive clients, portfolios that
include income oriented holdings such as short and medium term bonds and
notes and high yield bond funds. Such portfolio holdings produce income
streams that provide constant sources of return to portfolios, reducing
risks considerably at relatively little reduction in profit potential. The
exact equity to income component mix is determined by client investment
objectives which do change over time and which are reviewed periodically.
Portfolios are concentrated in
investments that have been leading their peers in performance, and such
investments are maintained for only as long as results performance remains
in the top 10% of the mutual fund universe tracked. Rankings take place on a
bi-monthly basis, and portfolio rebalancing takes place when required.
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