Flex Portfolio Performance Through October 2011

After a very difficult 3rd quarter, and an especially rough September, for stock markets, they went way up in October.  Since Potomac Wealth Strategies' Flex portfolios are widely diversified, their performance lagged relative to the stock markets.  Given the volatility of the markets, and the problems in the global economy, I am still strongly in favor of using a global/flexible portfolio and think Flex is the way to go.

So, how did Flex perform?  Not as well as I would like, and there are two culprits:  the Arrow DWA Tactical fund has been underperforming, likely because it uses an intermediate-term trend-following methodology that really does well over the long-haul but does not react to the kind of short-term volatility we are experiencing now; and Ivy Asset Strategy (which is much like a hedge fund and is the riskiest fund in the Flex portfolios) has invested fully in growth companies in emerging markets that have had a rough time lately.

What to do?  I am considering reducing the exposure to Arrow DWA Tactical for the Flex III portfolios; Flex II does not use this fund and performed significantly better recently, and about the same over the longer periods.  I am also in touch monthly with the folks at Ivy Funds--Asset Strategy fund has been performing very well lately (up 14.4% just in October, vs. 10.8% for the S&P 500, and up 2.2% vs. 1.9% so far in November), and I am inclined to stick with it because of its track-record and the potential for great returns.

Here are the performance #s:

For October 2011:
S&P 500:   10.8%
80 Fidelity:  8.3%*
80 Flex III:  4.6% 

60 Flex III:  4.2%

40 Flex III:  3.8%

Trailing Three-months (through 10/31):
S&P 500:    -2.5%
80 Fidelity:  -5.2%

80 Flex III:  -6.7%

60 Flex III:  -5.7%

40 Flex III:  -4.6% 

For 2011 YTD (through 10/31):

S&P 500:     1.2%
80 Fidelity:  -1.7%

80 Flex III:  -1.2%

60 Flex III:  0.3%

40 Flex III:  0.5%

For the 2-yr period ending 10/31/11:

SP 500:     12.1% per year

80 Fidelity: 7.3% per year

80 Flex III:  8.5% per year

60 Flex III:  8.1% per year

40 Flex III:  7.7% per year

For the 3-yr period ending 10/31/11**:

SP 500:      11.3% per year

80 Fidelity: 10.4% per year

80 Flex II:  15.2% per year

60 Flex II:  14.2% per year

40 Flex II:  13.19% per year

For the 10-yr period ending 10/31/11**:

SP 500:       3.6% per year

80 Fidelity:  5.3% per year

80 Flex II:  11.5% per year

60 Flex II:  10.8% per year

40 Flex II:  10.1% per year

*   80 Fidelity is a portfolio of very popular and widely-available index funds from Fidelity Investments allocated in a 80% stocks, 20% bonds strategy similar to that of the 80 Flex portfolios, and I want to compare the two; the 80 Fidelity portfolio uses a style-pure, buy-hold-rebalance method, while the 80 Flex portfolio allows for a great deal of tactical adjustments within the 80% stock long-term strategy.

** Not all Flex III funds were available for the full 10-year period, but all Flex II funds were.

The Stock-Bond-Alternatives-Cash allocation percentages are approximately:

80 Flex III:  43-10-18-29
60 Flex III:  32-18-14-36
40 Flex III:  21-26-11-42

I still believe staying the course with a global/flexible portfolio is a lot better than trying to time the market.  Please contact me with your questions or thoughts.  Thank you!

--Gary

(FYI, my own retirement portfolio remains mostly in 80 Flex III.)

Garo Linck Partoyan
Financial Advisor
Potomac Wealth Strategies, LLC
(703) 746-8195
Garo.Partoyan@PotomacWealthStrategies.com
www.PotomacWealthStrategies.com