Fund-Track - What Is It                                                                               

Fund-Track is a mutual fund timing and sector investing tool that enables users to compare mutual funds that are currently performing well and exhibiting good trend strength.  It provides mutual fund ratings for investors in a the form of regular fund ranks.  It was developed out of frustration with current newsletters in trying to find a few good mutual funds to invest in.  Three Fund-Track systems are available: 

Example Fund-Track Rank - PDF      Example Fidelity Select Fund-Track Rank - PDF      Example ETF Fund-Track Rank  - PDF

Each system also has one or more model portfolios that gauge the mutual fund timing performance of the systems, by using the ranks in  consistent and objective trading methods.  They can also be followed by investors wishing to replicate their performance. 

Successful mutual fund investing is simple in principle:  Find and buy the best funds while they are going up and then recognize when to sell them.  The difficult part is the execution of this strategy, which requires important adjustments as market conditions change.  Different types of funds perform differently in various market conditions.  Fund leadership changes within different industrial sectors, asset classes and/or geographic regions around the world.  Financial institutions may be doing well while technology firms may be hot, or Latin America's economy may be slumping at the same time China's may be improving.  In order to maximize gain, investors must be able to find the appropriate fund for the current economic conditions. 

Fund-Track provides a mutual fund ratings tool that finds those no-load funds that are performing well at any given time.  It practices successful mutual fund timing by taking diverse top no load funds and calculating the daily strength in each mutual fund’s price trend and then ranking them based on that strength.  The no load funds that make up Fund-Track are a combination of highly rated past performers and newer, smaller funds.  They are strategically varied in type and objective, spanning a wide variety of industrial sectors, asset classes and international regions. (as seen on the Fund List page)  No matter which way the market turns, there is most always strong performers in the ranks to choose from.   

Mutual funds are less volatile then individual stocks, and as collections stocks their net asset values (prices) tend to rise and fall in trends.  Stocks can move in price much more sharply due to a number of reasons (e.g., earnings reports. rumors, political conditions, economic conditions).  Mutual funds typically hold at least 20 or more different stocks which smoothes overall price movements and lets them move in response to broader economic conditions.  By tracking prices on a daily basis Fund-Track identifies fund trends utilizing statistical methods.  Thus mutual funds can be prepared and strong performers can be identified before they get publicized and hyped in the press, and when most investors begin pouring money into it.  This influx of investor money results in "asset bloat" which usually negatively effects performance.  Typically, the funds that are exhibiting the highest relative price strength maintain the their high ranking within Fund-Track for several months or longer.  When their performance starts to slow relative to others, their rank drops alerting investors to upgrade into higher ranked funds. 

In Investing "It’s The Trend that counts".  Hitting the highs and lows in the market is rarely possible, but being able to identify and take advantage of trends when they are present has enabled successful mutual fund timing and sector investing as evidenced in the Fund-Track model portfolio.

What Fund-Track Is Not:

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Fund-Track - How It Works                                                                  

Fund-Track utilizes a set of statistical algorithms to calculate price trend strength (Average Price Strength seen below) for all funds and then ranks them based on this.  This helps forecast where they might be heading in the future.  Fund-Track collects price and distribution data for each fund daily for use in the calculations.  Funds with high "Average Strength" will float to the top of the rankings and remain there as long as their price strength remains strong relative to the other funds.   Here is an example of the first few rows of a past Fund-Track rank.

Fund-Track Column Definitions:

Rank - The rank of the no load mutual fund for the present week..  All funds are ranked on Average price trend Strength

Fund Name - The name of the mutual fund.

Symbol - A fund's market ticker symbol.   Selecting the ticker links you to much more detailed information on the fund (Morningstar's Fund report)

Fund Type - The category the fund falls in.  The different categories are described in the section below and defined on the Fund Type Definitions page.   Mutual fund categories within Fund-Track resemble those identified by Morningstar. 

Price - The closing price (Net Asset Value) for the fund.  Mutual fund distributions (i.e., dividends and capital gains) are accounted for constantly in the form of an adjusted number of shares.   

Short Term Strength -  (STS) This percentage represents how far above or below the current fund's price is to its weighted calculated average.  It is the primary trend calculation for Fund-Track

Average Strength - (AS) Key indicator in which all funds in Fund-Track are ranked in order of.  A smoothing algorithm performed on the short term strength.  It gauges the average strength of the fund's price trend over the medium term.  This strength of trend measure helps to estimate how the fund will perform going forward. 

10 Week % Return - Percentage return of the fund for the last 10 weeks.  This has nothing to do with the ranking of the fund, but is simply an indicator to see how the fund has performed in the short term past.  This calculation is based solely on the price difference of the fund 10 weeks apart and does not include fund distributions.

 Year-To-Date % Return -  Percentage return of the fund for the current year-to-date including any dividends and/or capital gains distributions.  This again has nothing to do with the ranking of the fund. .

Rank Change -  Indicates the change in rank or amount of places the fund has moved up or down in the rank from the prior week, Friday to Friday.  (e.g., 4 = moved up 4 places from the prior week,  -9 = dropped 9 places from the prior week)

Status, Redemp Fees -  Indicates the status of a fund (if closed or not) or if a fund carries a redemption fee or not, and if is "closed" to new investors.  Example: 2%-60 = a 2% redemption fee is assessed (of the total amount invested) if a fund is held less then 60 days.  It is Fund-Track policy to not include any funds with a redemption fee greater then 1%, or 2% for funds held less then 60 days.   Fund-track trading history has shown that most funds are held longer then 60 days.  These fees will be updated twice a year at the mid point (July) and at year end.  Investors should double check these when they trade, as they are subject to change quite commonly.   

Risk (Standard Deviation) - Statistical measure of the range of a fund's performance.  By definition, approximately 68% of the time, the total returns of any given fund are expected to differ from its mean total return by no more than plus or minus one standard deviation. 95% percent of the time, a fund's total returns should be within a range of plus or minus two standard deviations. These ranges assume that a fund's returns fall in a typical bell-shaped distribution. Standard deviation indicates the volatility of funds returns over time.  It is an annualized statistic and calculated based on returns over the last 36 months.  It will be updated at the beginning of each year and midway through (end of the 2nd quarter).

Rules Based Recommendation - Indicates the recommended action on the mutual fund.  These mechanical actions are based on conditional logic that follow the recommended trading rules to follow seen on the How To Use page.  It is up to you whether or not you choose to follow them.

The Fund-Track ranking of all 200 mutual funds gets updated twice a week after every Friday's and Wednesday's market close.

The Funds Within Fund-Track: 

For information on funds within the Fidelity and ETF ranks see the Fidelity and ETF pages

Fund-Track is composed of 2000 diverse no load mutual funds that all usually place high in most mutual fund ratings reports, as well some newer unrated funds.  The tendency of new funds to out perform their older peers during their first few years of existence has been well documented within the mutual fund industry.  A recent study by the Financial Research Corp of 766 funds with 10 year track records found that small, generally newer funds on average deliver returns of 80 basis points a year over their fund-type category averages.

At the end of each year all Fund-Track funds are evaluated, with some being replaced for new year.  We are always searching for new "undiscovered" funds showing good potential, some of which do not get much press and are not even listed by Nasdaq.  Currently a mutual fund needs over 25 million in assets and over 1,000 investors to get listed by Nasdaq.

Funds selected for Fund-Track are screened for the following criteria:

1. No-load
2. Open to new investors
3. No or minimal short term redemption fees (No funds with a redemption fee > 1%, or 2% if held less than 60 days)
4. Minimum initial investment requirement less then or equal to $10,000
5. Widely available on most mutual fund trading brokerages (required on Scottrade and Schwab)
6. Superior (better then category average) 1 and 3 year average returns. (if in existence 3 + years)
7. Morningstar rating of greater then 3 stars. Except where fund is too new to be rated
8. Smaller funds preferred over larger funds
9. NTF (No Transaction Fee) funds preferred

All Fund-Tack funds are listed on the Fund List page by type.  Links to much more detailed information for each fund are also provided on that page by selecting the fund's ticker.

Fund-Types

Different fund types tend to do better then others depending upon the unique economic conditions present at the time.  For example in the economic instability of 3rd quarter of 2001 Gold, Real Estate and Bond funds (safe havens for those fleeing the stock market) prevailed.  And in the technology meltdown of March - April 2000' Bond, Energy and Short funds performed well and avoided large losses. The 200 funds that make up Fund-Track are chosen for their quality, diversity, and potential.  They are stratified into the following fund types:

Large Capitalization Growth                         Large Capitalization Value                                    Large Capitalization Value
Mid Capitalization Growth                             Mid Capitalization Value                                       Mid Capitalization Value
Small Capitalization Growth                          Small Capitalization Value                                   Small Capitalization Value

Sector - Financial                                          Sector - Gold                                                      Sector -Health
Sector - Natural Resources                            Sector - Real Estate                                             Sector - Technology
Sector - Telecom                                           Sector - Utilities

International - Foreign Stock                         International - World Stock                                 International - Asia/Pacific
International - Emerging Markets                   International - Europe                                        International - Japan
International - Latin America Bear Market  

International Bond 

For a description of these fund types see the see the Fund Type Definitions  page.

Sector Funds: 

An economy can be divided up into smaller groups of closely related industries known as sectors.  Mutual funds that specialize in these industries are called sector funds.  In the last few years the overall best performing funds for each year have all been sector funds. Although the same can also be said for the worst performing funds.  Sector funds have been the most consistent overachievers since their inception in the mid 1980s, just different sectors at different times.  According to Morningstar, over a 10 year period ending in the summer of 2001, 13 of 15 best performing domestic stock mutual funds were sector funds. Sector funds seek extra returns by taking the extra risks of specialization within a particular industry.  The fact that different economic conditions affect certain industrial sectors differently is commonly seen in Fund-Track as funds from different sectors move up and down in the ranks as conditions change.   By constantly measuring price strength Fund-Track is able to uncover what sectors are performing well and what funds are well positioned within that sector.  The Fidelity Select Fund-Track system plays this concept to an extreme in that it holds nothing but  the 42 Fidelity Select sector funds.  Being composed of strictly sector funds it is thus a more volatile and aggressive tool then the primary Fund-Track system.  Fund-Track practices successful sector investing by taking advantage of two fundamental traits of sector funds:

The same thing said here about sectors also applies to the different asset classes, and international regions.

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Fund-Track - Why It Works                                                                  

From experience, here are several reasons why Fund-Track has worked well in the past:

Note:  Fund-Track is merely a tool that ranks funds based on a mathematical algorithm.   "How well it works" depends greatly on how consistently and objectively it is used.  More on this in the How To Use page. 

Fund-Track avoids the "Chasing Past Winners" trap....

Chasing past winners is probably the single biggest reason why investors don't get better returns then they should.  Most investors select funds based on: past track records or their ratings or recommendations in popular financial publications. (Business Week, Money, Smart Money, Fortune, etc.) The thinking is that past time periods are long enough to gauge how a fund rides out the markets ups and downs.  The mutual fund newsletter No-Load Fund-X, tested this theory by conducting a study of mutual fund performance. They identified the twenty funds that had the best track records over a recent five-year period and determined how many of those funds would be in the top performing group again the following year? The answer: only one.  They then tried it again for other five-year periods and found that out of twenty one periods tested, on average, only two of the top twenty-five performers from the previous five years made the list again the following year. The conclusion of this study: If investors select funds based on their 5 year track records, the odds are overwhelmingly in favor of them purchasing funds that are not going to be market leaders.   Why?

After a fund has scored great returns, it gets highlighted by rating services and hyped by the press.  As a result, it attracts a flood of new money from investors wanting to get in this "hot" fund.  This incoming money means much more capital to manage resulting in what has been termed  "asset bloat" which can restrict performance.  In huge funds, positions taken in stocks must be much large and taken over a long periods of time.  Thus these funds tend to neglect smaller companies.  Smaller funds are able to capitalize on changing economic and market conditions much more efficiently then large funds by being able to sell and buy positions much faster, and in a much more diverse scale of companies.  

An example of one of these large funds is the Fidelity Select Electronics fund. Investors poured money into this fund from 1999 - 2000 based on the press touting Its past 5 and 10 year performance rating making it one of Fidelity's largest funds. As of the binning of 2003 these Investors lost  80% of their money in the prior  three years.  Obviously the market has had a lot to do with that but in addition the performance of these once successful funds deteriorate as their investment processes are modified to accommodate the flood of new money that pours in after their success was published. 

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Fund-Track - What To Expect                                                                  

Understanding how Fund-track works should help investors expectations about it. The points made below are based on experience in years of working with this investing approach in the past. They are no guarantee of how it will work in the future.

Fund-Track calculates price trend strength utilizing current and past price data.  The trend strength reflects the percentage that the current price is above or below its weighted calculated average. (i.e., the higher percentage the greater the strength and vice versa) In using current and past data, Fund-Track like other trending systems can not predict the future, but tries to put investors in a position to select funds that are currently performing well and showing a strong tendency (trend) to continue that performance.

As a trending system that averages and smoothes current and past historical price data Fund-Track cannot foretell the high and low points in fund trends or market rallies and slumps.  As funds climb in price faster then the other funds in Fund-Track they eventually rise to the top of the ranks and become a candidate for selection. Thus if and when a fund is selected it’s entire rise up in price is rarely captured.  Likewise as a fund peaks in price and starts dropping it will usually take a few weeks before its trend strength decreases enough for it to drop far enough in the ranks to trigger a sell.  Therefore when funds are upgraded in a falling market it is usually at a price somewhat off its peak.  How fast a fund rises and/or sinks in the ranks depends upon how fast it price increases and/or decreases relative to other funds in the rank.  More often then not a fund drops in the ranks not because it is dropping in price but rather because it is being surpassed by stronger performing funds.  In summary, Fund-Track enables investors to buy on the price rise in a fund, and to sell on the eventual decline of a fund, relative to the other funds in the rank.

Based on the above explanation, investors utilizing Fund-Track in a market downturn will be led into funds if any that are taking advantage of those conditions.  When that market eventually turns these funds are most likely not those poised to take advantage of the new market conditions.  As a down market which is taking most asset classes/sectors, and world regional funds with it turns back up again it takes a few weeks for Fund-Track to uncover what sector/asset class/international region is leading the market rise.  This is the time it takes for these funds to rise to the top of the ranks.  Patience is key here as Investors need to realize that as markets turn that they will not be in a position to immediately capitalize on the new market trend.  It usually take Fund-Track a few weeks to gather enough price data to determine what funds will lead the new market up move.  In the mean time investors should expect see the Fund-Track funds they are holding to drop in strength “relative to others” (not necessarily in absolute price) at first while the new trends are being established.  This is a lesson in patience, for within a few weeks the strongest performers rising to the top of the ranks will be identified for investors trade up into them.  In summary, Fund-Track does not turn on a dime, but as a trend tracking system it lags market moves identifying trends as they develop.

Funds rising to the top leading these moves typically out perform the market indexes.  This is where Fund-Track excels by incorporating nearly 200 focused funds in a diversity of sectors, asset classes and international regions. These funds are typically smaller in size then the largest out there thus usually more poised and quicker to take advantage of changing economic conditions and lead market moves.  So as a market turns, a portfolio of Fund-Track funds will typically lag the market average (Market index) for a few weeks until it trades into strong performers leading the move, then it will usually catch and surpass the index.  Another point to remember is that in a rising market a fund dropping in the ranks is more often then not still rising in price, but just losing ground to better performing funds.  But in a falling market, a fund dropping in the ranks usually means it is dropping in price as well.  These observations are not only based on the mechanics of how Fund-Track works but have been observed in years of working with it.

Note concerning Fund-Track Fidelity Select and ETF Ranks:  -   These 2 ranks work behave very similar to the regular Fund-track rank, and what is described above applies to them as well except that behavior is exhibited a bit quicker.  The funds in these 2 ranks are more volatile though and tend to move in price more quickly.  The trending coefficients and trading rules for the model portfolios are thus adjusted for this volatility.  

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Fund-Track - Is it Right for You?                                                               

Fund-Track is not for everyone.   One must be a disciplined and active or semi active investor and not afraid to act quickly if needed.    "Active" and "semi active" meaning those who review their investments and are willing to act if needed at least a couple  of times a month.  (or at least once a week for the fast moving Fidelity Select and ETF ranking systems)  Fund-Track is easy to utilize and a review of it to evaluate your funds takes just minutes,  but if your going to buy some funds at the top of the ranks and then not bother to review the ranks for months, this investing system is not for you. 

In order to successfully use this system you have be able to:

Fund-Track is ideally suited for tax deferred investing (e.g.,. IRA's 401K's, etc).  Utilizing Fund-Track you will probably be trading mutual funds more often then in a buy and hold strategy, therefore you will be taking more capital gains (or losses) then normal.  Within tax deferred accounts capital gains taken when selling out of funds would be not be susceptible to annual taxes.

Fund-Track is best utilized for investors that have accounts with one of the many on-line brokerage houses that have mutual fund networks or market places.  Within these brokerages investors can trade between mutual funds of different families without having to open new accounts.  This enables investors to take advantage of all the top funds that Fund-Track follows and not be limited to funds within their own fund families.  These accounts are very easy to set up and can be done so online. See the Brokers page for help here.

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