Annual Letter 2012

January 2013

To Our Clients and Prospects:

Chart Annual Letter 2012

In 2012, global central bank easing helped to fuel a 17% gain in global equities (VT) amid fears of the European debt crisis and the US “fiscal cliff.” Emerging markets (VWO) outperformed with a 19% gain while U.S. equity (VTI) was up 16%.

Financials (XLF), biotech (IBB) and homebuilders (XHB) were all among the leading sectors with gains of 28%, 32%, and 57%, respectively. Real assets were mixed with REITs (VNQ) up 18% and commodities (GSG) down -1%.

In fixed income, treasury inflation-protected securities (TIPs) gained 6% and emerging market sovereign debt (PCY) rose by 21%. Long-term treasuries (TLT) and the total bond market (BND) added 3% and 4%, respectively.

ETF PM’s investable benchmark portfolios gained 7% to 14% for the year. The 10-year total returns range from 143% to 157%, or 9% to 10% annually. These portfolios have current annual yields over 2.5% with blended expense ratios under 0.2%.

To broaden diversification, we combine strategic indexing with disciplined ETF trend following. Last year, our 50/50 Portfolio gained 9% while the Systematic Index fell by -3%.

Over the past 26 years, the 60/40 mix, 60% Systematic Index and 40% S&P 500, compounded by 9.5% annually. This trend following exposure improved the worst 10-year total return to a 44% gain, from a 13% loss for the S&P 500 alone. See our ETF Trend Following presentation online, slides 4-9.

Over the past eight years, ETF PM’s Aggressive Growth portfolio gained 41% while the S&P 500 rose by 39%. And, over the past five years, our 50/50 Portfolio gained 16% while the S&P 500 added 9%.

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

David S. Kreinces
Founder & Portfolio Manager

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