Investor Guide to the FundX Upgrader Funds
How Funds Can Make a Difference What to Do About Higher Interest rates 3 Phases of Retirement Investing
In the Winter 2017 Issue Shareholder Letter................................................. 3 How Funds Can Make a Difference..................... 4-5 What to do About Higher Interest Rates.............. 6-7 3 Phases of Retirement Investing.......................... 8-9
The fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and may be obtained by calling 1-866-455-3863, or visiting Upgraderfunds.com. Read it carefully before investing. Mutual fund investing involves risk. Principal loss is possible. The FundX Upgrader Funds (“Funds) are considered “funds of funds” and an investor will indirectly bear the principal risks and its share of the fees and expenses of the underlying funds. Shareholders will pay higher expenses than they would if they invested directly in the underlying funds. The Funds employ an “Upgrading” strategy whereby investment decisions are based on near-term performance, however, the Funds may be exposed to the risk of buying underlying funds immediately following a sudden, brief surge in performance that may be followed by a subsequent drop in market value. The Funds invest in underlying funds and these underlying funds may invest in securities of small companies, which involve greater volatility than investing in larger, more established companies, or they may invest in foreign securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods; these risks are greater for investments in emerging markets. The underlying funds may invest in debt securities, which typically decrease in value when interest rates rise; this risk is usually greater for longer-term debt securities. Lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher rated securities. While the Upgrader Funds are diversified, the underlying funds may invest in a limited number of issuers and therefore may be considered nondiversified. The underlying funds may engage in short sales; an underlying fund’s investment performance may suffer if it is required to close out a short position earlier than intended. Some underlying funds may borrow money for leveraging and will incur interest expense. Some underlying funds may use derivatives, which involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. ETFs are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a Fund’s ability to sell its shares. The underlying funds may invest in asset-backed and mortgage-backed securities, which involve additional risks such as credit risk, prepayment risk, possible illiquidity and default, and increased susceptibility to adverse economic developments. Past performance does not guarantee future results. While the funds are no-load, management and other expenses still apply. Please refer to the prospectus for further details. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The Barclays Aggregate Bond Index is an unmanaged index generally representative of intermediate-term government bonds, investment grade corporate debt securities and mortgage-backed securities. The MSCI All Country World Index (ACWI) is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. You cannot invest directly in an index. References to other funds should not be interpreted as an offer of these securities. Diversification does not assure a profit or protect against loss in a declining market. Nothing contained on this communication constitutes tax, legal, or investment advice. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Any tax or legal information provided is a summary of our understanding and interpretation of some of the current income tax regulations. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice. Automatic Investment Plans do not assure a profit, nor do they protect against a loss in declining markets. The FundX Upgrader Funds are distributed by Quasar Distributors, LLC.
Call your broker or 1-866-455-FUND (3863)
What are your goals? Dear Fellow Shareholders, What are you trying to accomplish this year? That’s one of the questions we asked the thousands of investors who use our NoLoad FundX investment newsletter. Most investors were focused on retirement. Some people were trying to build up a substantial nest egg so they could retire in the next few years. Others had already retired, and they were looking to maintain their lifestyle and preserve the money that they’d worked so hard to accumulate. There were many other goals as well. Some investors wanted to invest in a more sustainable way or learn more about bonds. Others were hoping to find more time for their investments. This issue of The Upgrader can help you get started. If you want to learn more about sustainable investing, turn to page 4 to find out how mutual funds work to help investors build wealth and make a difference in the world. If you’re looking to preserve your wealth, then you likely need to own bonds— even if interest rates rise. But it helps to have a strategy that can help guide you to which bond funds to own now and when to move on to other funds. Learn more on pages 6-7. And whether you are investing in retirement or for your eventual retirement, you’ll want to make sure that you’ve got the right allocation to stock and bond funds. On page 9, you’ll find three example portfolios that are designed to help you build wealth: one for when you have many years before you retire; another that seeks to preserve wealth when you are nearing retirement; and a third that is geared toward providing income in your retirement years.
Get started on your investment goals
The Upgrader Funds can also help simplify your retirement investing. They seek to help investors build wealth, capitalize on changing market trends, and achieve their investment goals. If you’re looking for the funds’ performance and portfolios, it’s now online. You’ll find more timely, up-to-date information at www.upgraderfunds.com. If you’d like to learn more about how the Funds can help you, please give us a call.
Janet Brown President, FundX Investment Group
How Funds Can Make a Difference Your investments have power. How you invest your money can be a vote for the values you want to support—from fairness and equality to safety and sustainability. But how does it actually work? How do your mutual funds try to make difference in the world? There are three strategies that mutual funds have been using for years: 1. Divestment: Avoid objectionable companies For many years, funds relied on divestment. They avoided investing in certain companies or industries, like tobacco or more recently, fossil fuels. Divestment is still an important tool, but most investors want to do more than just avoid ‘bad apples’; they want to actively support companies that are trying to do the right thing. 2. Investment: Seek out companies that are trying to make a positive impact Today, many funds invest in companies that have strong environmental, social or corporate governance policies (ESG). This is a way for the fund to mitigate risk. A company that is mismanaged could end up facing major fines or lawsuits. And importantly, it also allows fund investors to put their money behind the kinds of companies they want to support.
Funds are using their power as shareholders to help companies move forward on a wide range of issues.
3. Engagement: Work with companies to help them move forward Perhaps the most important way that funds are making a difference is by tapping into their power as shareholders. When you invest in a company, you get a say in how that company operates: you can file shareholder resolutions to try to change how a company operates, and you can vote on these proposals at shareholder meetings, and that’s exactly what many funds do. They invest in a company with the goal of engaging with the company and helping it do better. 4
Janet Brown President
Call your broker or 1-866-455-FUND (3863)
How fund companies have made a positive impact Investors filed more than 400 proposals just on environmental and social issues in 2015 alone, according to the US Forum on Sustainable Investing (USSIF). These efforts have led to some real results. They have persuaded hundreds of companies to make significant improvements. Here are just a few of their success stories
Fewer harmful chemicals in children’s products Domini Impact Investments engaged with Target to encourage the company to reduce the use of toxic PVC plastic in children’s products. (Other major retailers, like Walmart and Sears, soon followed suit.) Today, Target has a sustainable product standard that scores 7,000 products based on toxicity.
FundX Sustainable Impact Fund (SRIFX) Have you ever wanted to invest in a way that helped you get ahead and also supported the issues that matter to you? It often feels like you have to choose between your investments and your values, that you can either try to make money or make a difference in the world around you, and that’s a tough choice to make. The FundX Sustainable Impact Fund is designed to help you build wealth and build a better world. SRIFX seeks to own funds with strong environmental, social and corporate governance (ESG) ratings and strong recent returns. We manage the fund using the same Upgrading strategy we’ve been using for nearly 50 years. We hope the fund will help you retire comfortably, meet lifelong investment goals and make a difference.
More efficient energy use Calvert Research and Management has prioritized engagement with electric utilities and 53 major corporations have committed to source 100% of their power from renewable energy in the next two decades.
Smarter use of natural resources Trillium Asset Management engaged with Home Depot, which was one of the world’s largest retailers of old-growth lumber at the time. Home Depot agreed to use more sustainably sourced wood, and by 2009, Home Depot had sold more Forest Stewardship Council (FSC)-certified wood than any other company in North America.
The Upgrader Funds are funds of funds and do not invest directly in any individual companies.
The information in this communication is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This communication is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
What to do
about Higher Interest Rates Have you ever wished that you had a better plan for rising interest rates? You know that interest rates will rise eventually and that this could really affect the bond market. But you also know that many people—even experts—have been predicting higher rates for years now, and those predictions haven’t really panned out. Even the Federal Reserve doesn’t always get it right. The Fed anticipated making at least three rate hikes in 2016, but it ended up bumping rates up just once at the very end of the year. As we talk to investors, we’ve heard about the many different ways they’ve tried to prepare their portfolios for higher rates. One investor bought into short-term bonds because these bonds are less interest-rate sensitive. But rates stayed low, and her short-term bonds had such low returns that she felt like she was missing out.
How you can adapt to changes and avoid common mistakes.
Another investor decided to make a large investment in high-yield bonds, which could hold up better than other bonds when rates rise. But high yields turned out to be more volatile than he’d bargained for. His bonds suffered losses in 2015, and he sold them because he worried that high-yield bonds were a bubble that was about to burst. Many investors have never had any training on how to effectively adapt to changing markets, so it’s no wonder that they end up making common, but painful, mistakes. They’re trying to do the right thing, but they often end up holding themselves back.
Sean McKeon Portfolio Manager
Call your broker or 1-866-455-FUND (3863)
Flexible Income Fund (INCMX) A strategy designed to adapt to changing markets
Navigating changing bond markets since 2002
We’ve been navigating changing bond markets for decades, and one thing we’ve learned over the years is that a disciplined strategy can help you decide what kinds of bond funds to own now and when to move on to other funds. A strategy gives you a way to determine when to own more conservative funds like short-term bond funds, and how to mitigate the risk of high-yield or floating-rate funds.
Targets opportunities for gains in the bond market
Our Flexible Income strategy is designed to help you make these important decisions, and it has a proven track record of navigating changing bond markets.
Responds to changing risks
In the 2008 credit crisis, it led us to own lower-risk shortterm government bonds, which helped us avoid the steep losses from high-yield bonds. But we didn’t stay in lowreturning short-term bonds indefinitely. When the bond market recovered in 2009, the strategy prompted us to buy back into high-yield, strategic and world bond funds that had strong returns. This approach also handily navigated 2016’s bond market, even as interest rates rose at the end of the year. We didn’t have to predict when or how rates would rise, we simply focused on the funds that were excelling in the current market, and that led us to own high-yield, floating-rate and international bond funds, which ended up being some of the strongest performing areas. And we avoided more interest-rate-sensitive bonds like Treasuries and long-term bonds. Our flexible approach to bond investing has helped thousands of investors know what to do when markets change. It was initially only available to our private money management clients, but today, we share this approach with subscribers to our NoLoad FundX newsletter, and we implement this strategy for shareholders of our Flexible Income Fund (INCMX). It’s also how we manage the bond portion of the Conservative Upgrader Fund (RELAX), a balanced portfolio of both stock and bond funds. If you are looking for a time-tested approach that designed to navigate changing markets and has track record to show for it, consider INCMX.
INCMX targets areas of the bond market that are excelling in the current market environment. In 2016, INCMX owned corporate, high-yield, and floatingrate bond funds, which were some of the strongest performing areas of the bond market. We change INCMX’s portfolio in response to changing markets. We cut back on high-yield bonds when they fell at the start of 2016, and then bought back into these funds when they recovered.
Responds to changing rates INCMX’s active strategy seeks to mitigate risk, including interest-rate risk. In 2016, INCMX avoided interest-rate sensitive bonds like Treasuries and long-term bonds. It also invested in total-return funds, which usually invest in both stocks and bonds. Because these funds are not fully invested in bonds, they typically have less credit and interest-rate risk.
How to Invest You can invest in INCMX at most major brokers, often for no-transaction fee, or you can purchase the Fund directly from our shareholder services for as little as $1,000. Call 1-866-455-3863 to get started. As of December 31, 2016, INCMX returned 5.23%for the trailing one year; 3.64% annually for the five years; 4.03% annually for 10 years; and 5.05% annually since its July 1, 2002 inception. The gross expense ratio for the Flexible Income Fund is 1.50% and includes management fee, operating costs and acquired fund fees. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 866-455-3863 or visiting www.upgraderfunds.com
of Retirement Investing You invest in stocks for growth, but that growth comes at a price: volatility. You can turn to bonds because they’re less volatile, but the price for reduced volatility is the potential for less long-term growth. When you’re investing your retirement accounts, you have to weigh your need for growth against your ability to withstand volatility, and your needs often change over time.
1. Pre-retirement If you are pre-retirement, you should be primarily focused on accumulating enough money to fund your life after you stop working. Fortunately, you have time on your side and can be more focused on growth. Although your stock portfolio may be more volatile, you have time to recover from losses and the increased return potential of stocks should help you accumulate the amount that you will need in retirement.
2. Close to retirement As you get closer to retiring, you probably have been making regular contributions to your retirement accounts for years and so you’ve accumulated more money. You should still be putting money aside and you still need growth, but because you’re also closer to the point when you will no longer be earning, you probably value capital preservation almost as much as additional growth.
3. In retirement
Investors weigh their needs for growth against their ability to withstand volatility.
When you move into retirement, you’ll likely stop putting money into your retirement accounts and begin taking money out to meet expenses. Post-retirement, you’ll have less time to be invested and you’ll be more focused on income and capital preservation than on growth. The less volatile nature of bonds makes them a good fit for current income, and you should still maintain some exposure to stocks for growth and diversification. 8
Call your broker or 1-866-455-FUND (3863)
Here are some ways that you can use the FundX Upgrader Funds to create a pre- or post-retirement account. For each of these examples, we used the FundX Upgrader Fund (FUNDX) for a diversified growth portfolio and the FundX Flexible Income Fund (INCMX) for the fixed income component. We adjusted the portfolio allocation by adjusting the allocation to these two funds.
20% INCMX 80% FUNDX
Pre-retirement (under 55 years old) The majority of the portfolio is in FUNDX, which seeks to build wealth. With 20 years until retirement, market downturns offer opportunities to buy stocks at lower prices. A small allocation to INCMX (20%) may help buffer the volatility of a fully invested stock portfolio like FUNDX and help investors stay invested over the long term. Rebalancing allows investors to buy more stocks into market dips and sell into market rallies.
Closer to Retirement (ages 55-70)
A balanced allocation to FUNDX and INCMX can help generate growth with the potential for less volatility. Early retirees want to make sure their money will last, and FUNDX offers potential long-term growth. Retirees want to preserve what theyâ€™ve accumulated for retirement, and an increased allocation to INCMX (40%) should help buffer some of the volatility of FUNDX.
In Retirement (over 70 years old)
INCMX aims to help control downside risk and provide long-term income, a priority for retirees who may not believe they have enough time to recover from stock market declines. A modest allocation to FUNDX should continue to offer potential growth, since retirees need their retirement accounts to last. Investors who sign up for an automatic withdrawal plan receive a regular cash payment from their mutual fund or brokerage accounts.
Why FundX? Investors in the FundX Upgrader Funds have professional money managers working for them. We monitor the fundsâ€“and the marketsâ€“and make any necessary portfolio changes.
When you invest in the FundX Upgrader Funds, we follow the NoLoad FundX Upgrading strategy for you.
We execute the NoLoad FundX Upgrading strategy in a disciplined manner. If a fund or ETF falls in our ranks, we sell it and buy a higher ranking fund.
We Navigate Changing Markets for You
Capture Global Market Trends Investors in these funds seek to participate in global stock market growth. The funds can invest in different areas of the markets as new opportunities arise, including large-cap and small-cap, value and growth and international and domestic.
Combine Growth and Stability Investors in this fund seek the growth potential of an equity fund with the lower volatility of a fixed income fund.
Flexible Income Focused on Stability
SRIFX FUNDX SRIFX FUNDX HOTFX HOTFX RELAX TACTX RELAX SRIFX TOTLX TACTX FUNDX TOTLX INCMX HOTFX SRIFX INCMX RELAX FUNDX TACTX HOTFX TOTLX RELAX INCMX TACTX TOTLX INCMX
Sustainable Impact Fund Global sustainable growth
Upgrader Fund Sustainable Impact Fund Globalsustainable Growth Fund Global growth
Upgrader Fund Aggressive Upgrader Fund Global FundGrowth Fund Global Growth Aggressive
Aggressive Upgrader Conservative UpgraderFund Fund Global Aggressive Balanced Fund Growth Fund
Tactical Upgrader FundFund Conservative Upgrader Sustainable Impact Fund Global Growth Balanced Fund& Tactical Hedge Global sustainable growth
Flexible Return Fund Tactical Total Upgrader Fund Upgrader Flexible IncomeFund Global Growth & Tactical Hedge Global Growth Fund
Flexible Return Flexible Total Income FundFund Aggressive Upgrader Fund Flexible Income Fixed Income Sustainable Impact Fund Global Aggressive Growth Fund Global sustainable growthFund Flexible Income Conservative Upgrader Fund Fixed Income Upgrader Balanced FundFund Global Growth Fund
Tactical Upgrader Fund Aggressive Upgrader Global Growth & Tactical HedgeFund Global Aggressive Growth Fund
Flexible Total Return Fund Flexible Income Upgrader Fund Conservative Balanced Fund
Flexible Income Fund Tactical Fixed IncomeUpgrader Fund Global Growth & Tactical Hedge
Flexible Total Return Fund Flexible Income
Flexible Income Fund Fixed Income
Investors in these funds seek the stability of fixed income and seek a buffer against the volatility of equities. These funds invest in bond and total return funds, targeting those areas excelling in the current market environment.
Find updated portfolios and performance at
235 Montgomery Street, Suite 1049 San Francisco, CA 94104-3008 www.upgraderfunds.com 1-800-763-8639
By Mail: Go to UPGRADERFUNDS.com Download an Application to send in.
Shareholder Letter............................................ 3 How Funds Can Make a Difference................ 4-5 What to do About Higher Interest Rates......... 6-7 3 Phases of Retirement Investing..................... 8-9
Online: Go to upgraderfunds.com & click “Open a New Account”
By Broker: FundX Upgrader Funds are also available at most major brokers.
FundX Investment Group is publisher of the monthly investment newsletter NoLoad FundX and advisor to the FundX Upgrader Funds.