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During the fourth quarter we continued
to transition the Clermont portfolio from
a portfolio of mutual funds to a portfolio
primarily comprised of Exchange Traded
Funds (ETF).
The number of holdings decreased from 23 to 20 without compromising portfolio diversification. The percentage of the portfolio invested in Exchange Traded Funds increased from 56 percent to just over 80 percent. This increase was based on two major factors, cost and strategy execution. In both cases ETFs were a superior building block for our strategy compared to active funds. ETFs tend to have lower costs than actively managed mutual funds. The average expense ratio of a domestic diversified ETF is 0.22 percent, more than 1 percent below an average diversified domestic equity fund (Source: Morningstar, Principia May 31, 2002). Hence, using ETFs lowers the cost of delivery for our active asset allocation strategy considerably. ETFs also have a number of advantages for our strategy over active funds. They allow more rapid trading when trends change, the securities which make up the ETFs are known which enables us to get a more accurate picture of what is driving the trends, and style drift which impacts many mutual funds is eliminated. We continued to reduce small- and midcap allocations in favor of large-cap positions across all styles. The sector allocation of the equity portfolio within Clermont is similar to that of the S&P 500 with an over weighting in Utilities. The overall allocation between equities and bonds remains approximately 65 percent equities and 35 percent bonds.
The S&P 500 is an unmanaged group of stocks considered to be representative of the stock market in general. All
stated percentages (Interest rates and yield calculations) were formulated at the time of the interview and may not
reflect current interest rates or yields. You cannot invest directly in an index.
There are special risks associated with international investing, including currency fluctuations, economic conditions, and different governmental and accounting standards. Money Market: An investment in a 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 fund. Performance data quoted represents past performance and is no guarantee of future results. The Fund also offers other share classes with different sales charges and expense levels, which may affect performance. Investment return and principal value of this Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance stated is for Class N shares and assumes reinvestment of all distributions. N shares became effective on 7/15/97. Since 7/15/97, the Fund’s advisor has been temporarily waiving a portion of the Fund’s expenses. Otherwise, the returns would have been lower. The manager of the fund waives 73 basis points of the fee. Based on the high concentration of the Fund’s assets in the Top Ten Holdings, it should be mentioned that by concentrating in a small number of investments, the Fund’s risk is increased because each investment has a greater effect on the Fund’s performance. For more complete information, including a prospectus that details fees and expenses, call (866) 811-0225. Please read the prospectus carefully before you invest or send money. Distributed by Northern Lights Distributors, LLC Member FINRA/SIPC Not FDIC Insured, No Bank Guarantee, May Lose Value. |
