Design

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.