The Counterpoint Select Fund (CPFSX)
Review and Outlook for the Quarter Ending September 30, 2009
Dear fellow investors and friends:
The Counterpoint Select Fund rose 9.05% in the third quarter, versus a rise of 15.61% for the S&P 500. On a year-to-date basis, the fund is up 19.10% versus 19.26% for the S&P.
Counterpoint Select Fund Performance History
As of September 30, 2009
| Quarter | YTD | 1 Year | Since Inception |
|
|---|---|---|---|---|
| Counterpoint Select Fund | 9.05% | 19.10% | 11.99% | -2.74% |
| S&P 500® Index | 15.61% | 19.26% | -6.91% | -7.42% |
| Net Expense Ratio:* | 1.21% (with expense cap) |
| Gross Expense Ratio: | 3.35% (without expense cap) |
Performance data quoted represents past performance and does not guarantee future results. Investment returns and principal value will fluctuate, and when sold, may be worth more or less than their original cost. Performance current to the most recent month-end may be lower or higher than the performance quoted and can be obtained by calling 1-866-544-2737. The Fund imposes a 2% redemption fee on shares held less than 30 days. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
We started the quarter with a more defensive posture going into earnings season, but became more positive on the market’s near-term potential in light of improving economic and company earnings reports. We increased the effective exposure of the portfolio from 70% to 90%, by removing hedges and adding positions in Affilliated Managers Group, Apple Computer, Freeport McMoran, General Electric, McDonalds and Oracle.
We continue to think there are more challenges in the road ahead than the market is expecting, most likely associated with the plight of the dollar and the massive amount of government debt that is being incurred to finance the recovery. This debt is like the mother-of-all sub-prime mortgage loans. While rates are low and asset values are rising, it’s not a problem. But when rates do rise, it will likely become a very large problem.
But problems tend to beget solutions and opportunities, and it is important to differentiate between the economy, companies, and the stock market. They are related, but not completely. The debt represents a structural risk to the U.S. economy and a likely ball and chain on its ability to grow in aggregate. Meanwhile, individual companies may thrive or fail in this environment depending on how well they are positioned, capitalized and managed. Markets will rise and fall based on economic news, valuation levels, and the ongoing tug of war between expectations and reality.
Our view is that the economy and financial markets are now transitioning from a rebound phase to a recalibration phase where individuals, companies and investors reassess their expectations about the future and make adjustments to their lifestyles and business models accordingly. For consumers, this means saving more, paying down debt, and downsizing. For businesses, this entails restructuring to get rid of underperforming business units and excess capacity, and focusing on growth. For investors, it involves sorting out the playing field among winners and losers, paying close attention to valuation, and watching the overall economic vital signs.
As we write in our Commentary, we think China is the growth story of the coming decade. This is hardly a contrarian point of view, but it is an important one. We therefore want to keep tilting the portfolio towards companies that do business in China and should benefit from its growth, investment, and rising prosperity. These include General Electric, ABB, Mcdonalds, Freeport McMoran, Johnson & Johnson, and Coke.
We are also focused on technology companies, especially those that are tied to the explosive global growth of wireless computing and communications. These include Cisco, Qualcomm and EMC, along with the aforementioned Apple. Besides being incredibly well managed and positioned, these companies are also incredibly well capitalized, with over $80 billion in cash between them.
We continue to like our group of highly differentiated financial companies for whom this economic environment offers extraordinary opportunities to buy prize assets on sale, to help companies restructure and recapitalize, and to advise on a growing wave of mergers and acquisitions. These include Berkshire Hathaway, as well as Goldman Sachs and the Blackstone Group.
In healthcare, we are balanced between companies that offer a solution to the problem, and restructuring-value opportunities. In the first group we include Teva - the leading generics manufacturer and Cerner, the leader in healthcare technology. In the second group we include Merck and Pfizer, both of which are completing mergers which should improve their product portfolios and pipelines, and allow for large cost savings. Both companies also offer very attractive dividend yields.
For now, the markets continue to move higher. And they may go higher still. As they do so, the potential return relative to the overall level of risk becomes less attractive to us and we will likely raise more cash. But we are finding individual companies that should do well, are of very high quality, and remain attractively valued.
As always we welcome your questions and comments. They may be directed to contact@jmkadvisors.com.
Jurika, Mills & Keifer, LLC
Important Disclosures
*The Advisor has contractually agreed to reduce its fees and/or pay Fund expenses (excluding Acquired Fund Fees) in order to limit Net Annual Operating Expenses for shares of the Fund to 1.21% for the next year and indefinitely thereafter. * Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.
Past performance is not a guarantee of future results. The fund has experienced recent negative total returns. For current performance, click here.
Opinions expressed are those of Jurika, Mills & Keifer, LLC and are subject to change, are not guaranteed and are not recommendations to buy or sell any security.
The Counterpoint Select Funds’ investment objectives, risks, charges, expenses should be considered carefully before making any investment. The Fund’s prospectus contains this and other important information about the investment company and may be obtained by calling 866-544-2737 or from the Fund’s website at www.thecounterpointfunds.com. Please read it carefully before investing.
Mutual fund investing involves risk; principal loss is possible. The Fund may concentrate its assets in fewer holdings, which may expose it to increased individual stock volatility. The Fund may invest in smaller companies that involve additional risks such as limited liquidity and greater volatility than larger companies. The Fund may invest in foreign securities which involve greater volatility and political and economic and currency risks and differences in accounting methods. The Fund may also use options and futures contracts that have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. The investment in options is not suitable for all investors.
The S&P 500 Index is an index 500 large capitalization companies selected by Standard & Poor’s Corporation. One cannot invest directly in an index.
Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Click here for fund holdings. Current and future portfolio holdings are subject to risk.
The Counterpoint Select Fund is distributed by Quasar Distributors, LLC. (11/09)