When we first started publishing NoLoad FundX, we could trade every month without triggering redemption fees from the fund company (discount brokers weren’t common in 1976 and noload fund shares were purchased directly from the fund company). But over time, redemption fees became more common – especially in the years after the 2003 investigations into mutual fund trading.
Some thought that fund and broker redemption fees would be the end of Upgrading, but we don’t have to trade every month to capture major market trends. We use ETFs, which don’t require a specific holding period, and we hold funds a minimum of 90 days before selling. (This month, we also began using a 90-day hold in the Star Boxes on page 4.)
Today, short-term trading fees aren’t as prevalent. Big fund companies like Vanguard and Janus recently dropped redemption fees from some of their funds, and this trend echoes what we’ve seen in NoLoad FundX’s fund listings.
We looked back 10 years to see how many of the core, diversified funds in Class 3 charge a redemption fees. The percentage of Class 3 funds that had redemption fees increased from 2002 through 2007, but the percentage has decreased in recent years — perhaps because fund companies are now competing for investor assets with exchange traded funds (ETFs), which have no minimum holding period.
Changing the holding period will make past performance irrelevant. Hulbert will surely take notice of that.
We believe that using a minimum holding period for the StarBoxes is more practical since most subscribers use brokers to place their trades and nearly all brokers have a minimum holding period. Using a minimum holding period also allows us to include funds with redemption fees in the StarBox and many of these are good performers. We believe this change could improve the performance of the StarBox. That said, you certainly don’t have to hold funds longer if you don’t want to.
Before we implemented this change, we contacted the Hulbert Financial Digest and discussed it with them. Since August 2009, NoLoad FundX’s record in the Hulbert Financial Digest has been based on the Monthly Upgrader Portfolio.