Our most aggressive core strategy, Fund Upgrading is a “momentum” strategy premised on the idea that recent past performance tends to persist. The strategy has you diversify your portfolio across five stock fund “risk categories” and up to four bond fund categories. You then buy the funds SMI objectively determines to have the highest momentum, occasionally replacing lagging funds with those showing stronger momentum. With only monthly maintenance, Fund Upgrading has generated considerably better long-term returns than the overall market. This article explains the changes to put in place for the coming month.

In the Foreign group, Fidelity International Small Cap (FISMX, 5/2013) is being replaced.$
This fund followed a fairly typical path for our Upgrading recommendations. It performed significantly better than its peer group for quite a while (the first nine months we owned it), then started to lag a bit (it performed slightly below average in February and March), which led to it falling out of its category's top quartile and being replaced. All together, the fund gained 16.6% through the first 11 months we owned it, which compares favorably to the 11.6% gain of the average foreign fund during that span. It earns a "$" rating only because we are selling it right at the one-year mark, so those who are close to a 365-day holding period may want to hold on in order to turn any profits from short-term capital gains (which are taxed at the same rate as ordinary income) into long-term capital gains. This is only a consideration for those investing in taxable accounts, but with significant gains in the fund, it's worth checking your buy/sell dates.

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