Introducing the SMI Bond Fund (SMIUX) and the 50/40/10 Fund (SMIRX)

Apr 28, 2015
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Introducing the SMI Bond Fund (SMIUX) and the 50/40/10 Fund (SMIRX)

Nearly a decade ago, some of us at the SMI Newsletter formed SMI Advisory Services (the “Adviser”) and launched the original Sound Mind Investing Fund (SMIFX). The Adviser manages the Fund using the SMI Newsletter’s Upgrading strategy.

Two additional funds eventually joined SMIFX: the SMI Dynamic Allocation Fund (SMIDX), which is a managed approach to the Dynamic Asset Allocation strategy, and the SMI Conservative Allocation Fund (SMILX), which blends multiple approaches in a roughly 60% stock / 40% bond mix. (Dynamic Asset Allocation is typically used for the “stock” portion despite the fact that DAA isn’t always invested solely in stocks, and Upgrading can also be used at the managers’ discretion; Bond Upgrading governs the 40% bond portion).

Both SMIFX and SMIDX grew rapidly, and today each of these two funds has grown to more than $200 million in assets under management. This growth has demonstrated significant demand for professionally managed versions of the SMI newsletter’s most popular strategies.

This month, SMI Advisory Services is pleased to announce that two new funds are joining the SMI Funds lineup. The SMI Bond Fund (SMIUX) will provide investors the opportunity to have the Adviser manage the bond portion of their portfolio. While SMI’s Conservative Allocation and Dynamic Allocation Funds include bonds in varying degrees, SMIUX is the first SMI Fund that will allow investors to pair a pure SMI Bond approach with SMI’s most popular stock strategies in the exact allocations they desire. It’s a natural complement to SMI’s equity funds, providing the opportunity for an investor to craft a managed solution for his or her total portfolio.

The second new fund is imaginatively named (!) the SMI 50/40/10 Fund. It will likewise offer a professionally managed option to those who desire to automate their investing in a blend of the Dynamic Asset Allocation, Upgrading, and Sector Rotation strategies. Both of these new funds are available to the public and are accepting investments. (* See disclosures at the bottom of this article).

As with the other SMI Funds, these new funds will not be exact replicas of their newsletter-strategy counterparts. In each case, while the same guiding strategy will be applied, there will be differences in implementation. Some of those differences are intended to pursue a performance advantage, as SMI Advisory Services occasionally identifies strategy tweaks or enhancements that it believes can add value. Other differences are simply a result of managing a large portfolio on a daily basis with cash flows regularly moving in and out, as opposed to the smaller, largely static personal portfolios that newsletter readers typically manage on a monthly basis.

SMI Bond Fund (SMIUX)

The SMI Bond Fund will implement the newsletter’s bond upgrading strategy, relying on an objective momentum formula to steer investment between different types of bonds. As with the newsletter version of bond upgrading, part of the Fund’s portfolio will be upgraded while the other part will consist of a less dynamic core where the priority is stability. From a conceptual standpoint, the Adviser believes that the differences between newsletter bond upgrading and SMIUX’s version should be minimal.

However, there are significant differences between how these two versions will be implemented. The research process that led to the newsletter’s bond upgrading strategy was guided by the need to minimize the amount of trading required for the newsletter’s readers. This priority strongly influenced both the momentum formula that ultimately was chosen as well as the universe of potential bond options. But because the SMI Bond Fund is professionally managed, more frequent trading isn’t a problem. As a result, the Adviser will utilize a different momentum formula and larger universe of potential investments. Based on its research, the Adviser believes these changes offer the opportunity for improved performance. While that remains to be seen, using a different momentum formula and upgrading with some different potential bond types will undoubtedly change the trading pattern of the Fund relative to the newsletter. As a result, the SMI Bond Fund’s holdings and performance may significantly differ from that of the newsletter’s composite portfolio.

Another difference is how the non-upgrading portion of the portfolio is invested. SMIUX intends to utilize Reams Asset Management as a sub-advisor to invest a portion of these core holdings.

SMI 50/40/10 Fund (SMIRX)

Over the past few years, many newsletter readers have begun blending SMI’s most popular strategies within their portfolios. One especially popular combination has been to invest using 50% Dynamic Asset Allocation, 40% Fund Upgrading, and 10% Sector Rotation. (Newsletter readers manually implementing this approach would, if desired, divide the 40% Upgrading allocation between stock and bond upgrading using their personal stock/bond allocation. However, the 40% Upgrading allocation within SMIRX will be all stocks and no bonds, so an SMIRX investor may wish to add a small, separate bond allocation to achieve an overall stock/bond allocation that more closely reflects what the investor’s portfolio would look like if he or she were implementing the 50/40/10 strategy manually. The new SMI Bond Fund can be used in this situation to create a simple, two-fund total-portfolio solution.)

This 50-40-10 approach was already relatively easy to implement using the SMI Funds, as both the Dynamic Allocation (SMIDX) and Fund Upgrading (SMIFX) pieces exist as stand-alone funds. While there hasn’t been an SMI Fund option to handle the Sector Rotation portion, it still hasn’t been a particularly challenging approach for most investors to implement.

As SMI Advisory Services debated the merits of starting a fund to roughly follow the 50-40-10 strategy allocations, two points stood out. First, even though it’s not especially hard for those using SMIDX and SMIFX to handle their own Sector Rotation trading, some investors simply prefer having their portfolio professionally managed and likely would jump at the chance to turn over that monthly responsibility.

Second, there is a specific group of investors who might greatly benefit from having all three of these strategies implemented for them within a single vehicle: those making regular contributions with relatively small dollar amounts. These investors might find it challenging to meet the minimum investment requirements of investing in all three strategies on a regular basis. SMIRX may provide a more economical way to accomplish it.

SMIRX will be direct only; no brokers

While the 50/40/10 Fund (SMIRX) likely will appeal to many different types of investors, one concession is being made with smaller accounts firmly in mind. All of the other SMI Funds, including the new SMI Bond Fund, are available for purchase via the major broker platforms. This allows those with accounts at Fidelity, Schwab, etc. to easily purchase the SMI Funds and hold them alongside any other investments they might own in those accounts.

The SMI 50/40/10 Fund, however, will not be joining the other SMI Funds on the broker platforms — it will be available only via direct investment in an SMI Funds account.

The reason behind this decision is straightforward: it costs a lot of money for a fund to be made available on the large broker platforms. For example, SMI Advisory Services paid Fidelity more than $120,000 in 2014 — just to allow the SMI Funds to be available there. That’s one broker. All the others require a similar percentage cut.

While the Adviser, and not the Fund, pays those fees directly, ultimately the fees impact shareholders in the form of higher fund expenses than would otherwise be required. That’s a tradeoff all fund companies must consider for their shareholders: the convenience of being able to buy a fund via these large broker platforms vs. the additional cost involved.

While the Adviser reluctantly agrees that the convenience of buying its other funds via the platforms warrants the higher platform costs, the case for taking that path with the new 50/40/10 Fund (SMIRX) is less clear-cut. Given that 90% of this fund is already available on the platforms via SMIFX and SMIDX, and that the remaining 10% Sector Rotation piece can be handled relatively easily via the newsletter, those who feel they need the broad flexibility provided by a brokerage account can still implement the 50/40/10 approach without too much difficulty.

On the other hand, some investors may decide that having access to the five SMI Funds provides adequate investing flexibility. (In addition, a money-market fund was recently made available to those with directly-held accounts with the SMI Funds. While not managed by SMIAS, providing access to a money-market fund was an important step in providing a full lineup of fund options for direct shareholders.)

Given the options now available, some investors may no longer feel the need for a broker account. In that case, transferring or opening an account directly with the SMI Funds to invest in the SMI 50/40/10 Fund could be a desirable and easy change. Importantly, keeping SMIRX direct-only enables the Adviser to keep the Fund’s expenses a little lower than they would be if platform costs had to be built into the equation.

A direct SMI Funds account already was a particularly advantageous setup for those making regular contributions, as there are no transaction costs for each purchase within a direct account (transfers between SMI Funds are also free for direct shareholders). And, of course, each contribution is automatically spread across all three strategies (DAA, Upgrading, Sector Rotation) in the proper proportions. There’s no other way to do that as conveniently or cheaply. As a result, we think SMIRX is likely to become the vehicle of choice for those with smaller accounts, as well as those making regular contributions across these three particular strategies.

Lower contribution limits

To further simplify the process for newer investors and those with smaller accounts, SMI Funds is launching both of these new funds with initial contribution amounts of only $500, and subsequent investments can be as low as $50. (The Adviser plans to implement these changes in its other three funds eventually.)

In fact, it’s possible to start investing in three different SMI strategies via the 50/40/10 Fund with as little as $50 by setting up an automatic investment plan (AIP) that makes regular contributions, bypassing the initial $500 requirement. These minimums are significantly lower than most funds require and hopefully will make the SMI Funds a particularly appealing choice for those familiar with SMI’s investment strategies who may be influencing kids or grandkids as they first set up investment accounts of various types.

Important reminders

  • The SMI Funds charge a management fee.
    One difference between utilizing an SMI Fund and managing your own portfolio utilizing the corresponding newsletter strategy is the higher expenses fund investors will pay. Either approach involves paying expenses for the underlying investments, but using an SMI Fund adds a second layer of fees, increasing costs beyond what you would pay to follow the strategies on your own. Theoretically, an investor who owned exactly the same investments as one of the Funds without paying any additional trading costs would outperform it by the amount of its expense ratio.

    Of course, it isn’t possible for an individual to exactly replicate what any of the SMI Funds is doing in real-time because the needed data aren’t available to them. The Adviser believes each Fund’s enhancements to its corresponding newsletter strategy (or strategies) will offset some of the additional expense over time. But even if that doesn’t occur, past experience indicates there will be many for whom it’s worth paying a little extra in order to automate their use of these strategies.

    Those investors will know they are getting timely implementation of each strategy’s process, insulating themselves from the very real risk of their emotions compromising their application of the strategies, plus getting the very best ideas SMI Advisory Services has uncovered in its extensive (and ongoing) research on both stock and bond upgrading, DAA, and sector rotation. For these investors, it’s worth the additional expense to be free from the responsibility of having to monitor and execute changes in their portfolios every month. (Note that all of the Fund’s expenses have already been taken out of any published performance figures for the SMI Funds.)

  • Expect different performance outcomes.
    Over the past year or so, SMI Funds has begun implementing more enhancements to the newsletter’s methodology across all of its funds. While the Adviser’s belief that these enhancements will boost performance over time isn’t provable at this point, we can be reasonably sure they will cause the Funds’ returns to differ from the newsletter’s returns. Naturally, SMI Advisory Services wouldn’t be adding the complexity of these enhancements if testing hadn’t shown each tweak would have added considerable value in the past. But it’s important to understand that each Fund’s performance won’t march in lock-step with the newsletter.

    Over time, we expect these differences to help offset the additional costs of using the Funds. But on a year-to-year — and certainly month-to-month — basis, the differences may be confusing to those who don’t understand that each Fund’s specific application of its corresponding strategy is somewhat different than the newsletter’s.

  • Brokerage availability.
    The SMI Bond Fund (SMIUX) should eventually be available to investors at all brokerages that currently carry the other SMI Funds. However, some brokers (including Fidelity, Schwab, Scottrade, and TD Ameritrade) have changed their policies in recent years to only add new funds based on customer requests. If your broker offers SMIFX, SMIDX, and SMILX but doesn’t list SMIUX yet, give them a quick call to request that they add it right away.

    As was discussed earlier, the only way to buy the 50/40/10 Fund (SMIRX) is to open or transfer an account directly with the SMI Funds. Both are easy to accomplish — has the forms you need and there are phone representatives standing by to help you with the process should you need it.


Because SMI Advisory Services, the Adviser to the SMI Funds, is a separate entity from the SMI newsletter, the SMI newsletter staff is not authorized to give information about the SMI Funds. Instead, for more information about the SMI Bond Fund (SMIUX) or SMI 50/40/10 Fund (SMIRX), including risks, fees, and expenses, call 877-764-3863 for a free prospectus. Or, download one from the website. Read it carefully before investing or sending money.

Thousands of investors currently enjoy the convenience of having the professionals at SMI Advisory Services manage their Upgrading and DAA portfolios. If you’d like to enjoy those benefits for the bond portion of your portfolio — or you find the convenience of the new blended 50/40/10 approach to be appealing — these new SMI Funds may be worth investigating.


* There is no guarantee that this or any investment strategy will succeed; the strategy is not an indicator of future performance; investment results may vary.

Given the significant differences between strategies and mutual funds, investors should consider the differences in expenses, tax implications and the overall objectives between strategies and mutual funds before investing.

Past performance of the strategy is not indicative of future performance of the Funds.

Because the SMI Funds will invest in other ETFs, mutual funds and privately-traded partnerships, each Fund will bear its share of the fees and expenses of these underlying investments, in addition to the fees and expenses payable directly to the Fund. As a result, you’ll pay higher total expenses than you would investing in these instruments directly.

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risks, and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer’s credit rating or creditworthiness causes a bond’s price to decline. High yield bonds are subject to additional risks, such as increased risk of default and greater volatility because of lower credit quality of the issues.

You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Funds’ prospectus contains this and other information about each Fund, and should be read carefully before investing. You may obtain a current copy of the Funds’ prospectus by calling 877-764-3863, or you can download one from

Past performance is no guarantee of future results. Your Fund shares, when redeemed, may be worth more or less than their original cost. Each of the SMI Funds can be purchased directly from the distributor (Unified Financial Securities, Inc.) with no fee.

Regarding the money market fund mentioned in this article: An investment in the Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the money market fund.

Written by

Austin Pryor

Austin Pryor

Austin Pryor has 40 years of experience advising investors and is the founder of the Sound Mind Investing newsletter and website. He's the author of The Sound Mind Investing Handbook which enjoys the endorsements of respected Christian teachers with more than 100,000 copies sold. Austin lives in Louisville, Kentucky, with his wife Susie. They have three grown sons and many grandchildren.

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