OUR STRATEGY Instead of being locked into one trading style, it is best to employ a strategy that has the flexibility to rotate to the best performing market segment. That’s what our Style Index strategy is all about.   Table 1. Style Index Exchange Traded Funds Ticker ETF Market Segment DVY iShares Dow Jones Dividend Index Large-Cap Value QQQQ Nasdaq 100 Tracking Stock Large-Cap Growth SPY S&P 500 SPDR Large-Cap Index MDY MidCap SPDR Mid-Cap Index IJS iShares S&P Small-Cap Value Small-Cap Value IJT iShares S&P Small-Cap Growth Small-Cap Growth IWM iShares Russell 2000 Small-Cap Index Small-Cap Index EFA* iShares EAFE Int'l - Developed Countries EEM* iShares Emerging Markets Int'l - Emerging Countries   * Added September 2005   Style Index Portfolios holds securities that track various market indexes. These “style indexes” include large-cap growth, large-cap value, small-cap growth and small-cap value. We believe the best vehicles for trading style indexes are Exchange Traded Funds (ETFs), the fastest growing financial product in the United States. ETFs were introduced in the United States in 1993 with the advent of the Standard & Poor’s Depository Receipt, commonly known as Spider. ETFs didn’t become well known, however, until the late 1990s when the very popular Nasdaq 100 (QQQQ) ETF was introduced. Money managers quickly learned how ETFs provide a convenient way to gain market exposure with one single transaction. As a result, ETFs have since become the fastest growing financial product in the United States. Even during the 2000-03 bear market, assets in ETFs nearly doubled. ETFs are securities that combine elements of index funds, but do so with a twist. Like index funds, ETFs are pools of securities that track specific market indexes at a very low cost. Like stocks, ETFs are traded on major U.S. stock exchanges and can be bought and sold anytime during normal trading hours. Since an ETF holds a basket of stocks, one bad stock performer should have only a minimal effect on the price of the ETF. In the early 2000s, ETFs were introduced which track “style indexes” such as large-cap growth, large-cap value, small-cap growth, and small-cap value. Vomund Investment Management is one of the first investment advisors to take advantage of this new breed of ETFs. Fittingly, we call our program Style Index Portfolios. Table 1 shows the ETFs that Vomund Investment Management tracks. Trading style indexes allows us to rotate to the market segments showing the best performance. When growth is in favor, our portfolios rotate toward growth oriented indexes. When value is in favor, our portfolios rotate to value oriented indexes. Unlike most other managers, we are not locked into one investment style. During the bullish periods, returns are often led by growth oriented securities such as the Nasdaq 100 Tracking Stock (QQQQ). During bearish periods, the portfolio is designed to outperform by exiting aggressive positions and rotating instead to more conservative value based securities such as the iShares Dow Jones Select Dividend Index (DVY). Here is the relative strength report on December 17. It is apparent that small-company stocks are leading as the top three ETFs all track small-company indexes. As long as our portfolio holdings are outperforming (i.e. in the top half of the report), then there are no trades. Once a holding begins to underperform, then we rotate to the new leadership position. Goals We used the lessons from the 2000-02 bear market to create the Style Index Portfolios. Here are our goals: Take full advantage of bull markets by rotating to aggressive instruments. Perform better than the S&P 500 Index during bear markets as well as bull markets. To achieve this goal, the portfolio should attempt to move out of aggressive securities and move into more conservative, value-based stocks during bear markets. Be flexible enough to allow the portfolios to invest in the large-cap, mid-cap, or small-cap arena, whichever is doing best. Along the same lines, the portfolios should concentrate in growth issues when growth investing is in favor and focus on value issues when value investing appears to be appropriate. Long-term investors should feel comfortable with the strategy.   Vomund Investment Management Home Page Copyright © 2008 Vomund Investment Management, LLC. All rights reserved. Past performance does not guarantee future results.