Annual Letter 2013

January 2014

To Our Clients and Prospects:

Chart Annual Letter 2013


In 2013, global central bank easing drove a 33% gain in U.S. equity amid fears of Federal Reserve stimulus “tapering,” and an ongoing debt-ceiling crisis. Emerging markets (VWO) underperformed with a 5% loss, leaving global equity (VT) up 23% for the year.

Biotech (IBB) was among the leading sectors with a gain of 65%, while real assets and fixed income were weak. REITs (VNQ) were up just 3%, commodities (GSG) slid 2%, and Gold (GLD) plummeted down 28%.

Strong equity returns, and severe weakness in fixed income, prompted some investors to reduce their exposure to bonds. Treasury inflation-protected securities (TIPs) fell by 8%, long-term treasuries (TLT) dropped 13%, and the total bond market (BND) lost 2%.

Our benchmark growth portfolio gained 11% for the year, leaving the eMAC’s 10-year total return at 123%, or 8% annualized. This portfolio has a current annual yield of 2.4%, with a blended expense ratio under 0.2%.

To broaden diversification, we combine strategic indexing with disciplined ETF trend following. Last year, our 50/50 Portfolio gained 13% while the Systematic Index fell by 2%. Our new Tactical Portfolio also performed well delivering a gain of 19%.

Over the past 27 years, 60/40 SI (60% Systematic Index and 40% S&P 500) compounded by 9.6% annually. This trend following exposure improved the worst rolling three-year total return to a 2% loss, from a 38% loss for the S&P 500 alone. See our ETF Trend Following presentation online.

Over the past nine years, ETF PM’s Aggressive Growth portfolio gained 58% while the Systematic Index rose by 27%. And, over the past six years, our Global Growth portfolio gained 30% while the Systematic Index added 13%.

As always, please let me know if you would like to discuss.

David S. Kreinces
Founder & Portfolio Manager

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