A Eulogy For Buy-And-Hold Investing

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
January 27, 2009

IN THIS ISSUE:

1. News Flash – Buy-And-Hold Is Dead

2. Or Is It?

3. The Bottom Line

4. Actively Managed Programs That Work

5. Niemann Equity Plus – Master Of The Universe

6. Scotia Partners – The Best Defense Is A Good Offense

Introduction

In my November 11, 2008 E-Letter, I claimed that buy-and-hold investing might soon be a thing of the past following the catastrophic stock market losses late last year. In light of a second bear market within eight years that has (again!) decimated the retirement savings of the Baby Boom generation, it’s not much of a stretch to think the investment strategy that allowed the whims of the market to lay waste to investors’ portfolios would be cast aside.

However, buy-and-hold investment strategies are not going gently into that good night. While the financial media has been buzzing with stories of how buy-and-hold is dead, other stories are, like Mark Twain, claiming that the news of its death is greatly exaggerated.

Proponents of asset allocation have even trotted out 81-year-old Harry Markowitz, the creator of Modern Portfolio Theory (MPT), to defend the faith. You may recall that Markowitz won the Nobel Prize in Economic Sciences in 1990 based on his MPT work. However, you may also recall that in my May 24, 2005 E-Letter I documented that Mr. Markowitz did not utilize MPT when investing his own portfolio.

Since 1995, I have been advising my clients to include active management strategies, and especially those that can move to cash or hedged positions when the market drops like a rock. Whether you call it buy-and-hold, asset allocation, passive or index investing, MPT or whatever, the end result is that your investment strategy requires you to ride out bear markets and the potentially huge swings in the market such as we’ve seen recently.

Let me state this as candidly as possible: If you are trusting Modern Portfolio Theory to help you reach your investment goals, I think you will continue to be disappointed. Whether you are constructing your own portfolios on the Internet or using one of the many brokers or advisors who have no other alternatives to show you, MPT has major flaws that have long been identified, but generally dismissed by Wall Street due to factors I’ll discuss later on.

I also believe that there are powerful vested interests in the financial services industry that are seeking to keep asset allocation on life support. This week, I’m going to discuss these forces and tell you why you need to reject their tired old theories. In addition, I’m going to tell you what some brokers who were previously under buy-and-hold’s spell are doing, and why you should take notice.

Finally, I’m going to highlight two of the programs that I wrote about last year and let you know how they did. While past performance cannot predict future results, I’m pleased to report that the Scotia Growth S&P Plus Strategy turned in a 77%+ return in 2008. Most impressive, however, is the Niemann Equity Plus Program that has beaten every mutual fund in the universe of funds available to individual investors, based on our risk and return analysis. The details on these programs should astound you, but first, let’s give buy-and-hold the burial it deserves.

Buy-And-Hold Is Dead

According to the Investment News publication, a recent survey of 750 millionaires by the Chicago-based Spectrem Group indicated that two-thirds said their advisors did a poor job of managing their investments, and are looking for alternatives. While buy-and-hold is offered under a variety of names, the idea of leaving your investment portfolio to the whims of the market is going the way of the dodo.

This death has not been swift nor has it been merciful, but it has been long expected. Experts have questioned MPT’s buy-and-hold strategy almost since it was first promoted, claiming that it was lulling investors into a false sense of security based on historical relationships among asset classes that may or may not continue into the future. However, a strong bull market generally kept these shortcomings from coming to light, at least until the last eight years or so.

The poor performance of buy-and-hold portfolios during the last two bear markets has been a major factor in calling the strategy into question. However, another important factor is that the advantage of low correlation among certain asset classes so highly touted by proponents of asset allocation can be significantly reduced in severe bear markets.

Correlation is a term used to describe the relationship among various types of investments. If different classes of stocks go up in unison, they are considered to be positively correlated. If one goes up when the other goes down, they are negatively correlated. The goal of MPT and asset allocation is to diversify a portfolio among asset classes that have low or no correlation. In theory, this would give an investor a measure of risk management, since not all investments should go up and down together.

However, recent bear markets have shown that correlation tends to increase during declining markets. Thus, the end result has been that correlation is low during bull markets when investors don’t need it, but begins to disappear in bear markets when it would be useful.

If MPT buy-and-hold programs had such obvious faults, why did it take so long to die? I think there are a number of reasons for this, including the following:

The financial services industry has invested millions of dollars in research, software, websites, training and marketing pieces that depend upon MPT and asset allocation. To give up on asset allocation would mean scrapping all of this expensive effort, and I don’t think that’s going to happen.
Sadly, MPT asset allocation programs are all that some investment professionals know how to sell. The concept makes sense to them, has won a Nobel Prize, provides diversification and the software noted above makes it relatively easy to hand a professional looking proposal to a prospective client. What’s not to like (other than the performance, of course)?
Some brokers may be open to active strategies, but may be restricted by their broker/dealer organizations from selling such programs unless they are in the form of an approved mutual fund. Since many broker/dealers have been convinced that market timing doesn’t work, active managers sometimes can’t even get in the door.
This may come as a surprise, but the move to actively managed strategies has also been hampered by the fact that most actively managed programs don’t work. We have reviewed literally hundreds of actively managed investment programs over the years, and only a select few have ever been recommended to our clients. I believe that with effective due diligence, appropriate active managers can be found, but those who fail reinforce the idea that market timing and other active management strategies don’t work.

Finally, advisors touting MPT strategies are trying to keep clients by claiming that the market is now set up for another bull phase, and that pulling out (or staying out) of the market will make you miss the gains. Actually, this may be true, but it is important to remember that major market indexes had just risen back to their April 2000 levels when WHAM, they were hit again by the subprime bear market. How many rides on that roller coaster do you want to take?

I dare say that many of those investors holding fancy MPT proposals with Monte Carlo simulations showing they have a high percentage chance of meeting their investment goals are now wondering, “How do I get there from here?” How indeed.

Face it, MPT in whatever shape or form has failed many of the Baby Boom generation who needed it to work for them the most. Many are now approaching retirement with decimated portfolios, and are tired of hearing Wall Street’s same old buy-and-hold mantra. If buy-and-hold isn’t dead, it should be.

Or Is It?

As I noted above, I have read a number of articles recently claiming that buy-and-hold is not dead. Some of these articles use what can best be called “Clintonian” definitions of buy-and-hold. Some have tried to redefine buy-and-hold by calling it “diversification.” Others claim that MPT and asset allocation are not really buy-and-hold strategies, since portfolios are periodically rebalanced. Another article even said that one critic of buy-and-hold was really referring to market timing. Now that’s a long shot!

I find it very interesting that those who defend MPT are now trying to recharacterize it as the ultimate in diversification. Perhaps that’s because diversification is a cornerstone of investing, and everyone pretty much agrees that it’s important (even me.) So, if they can equate MPT and diversification, criticizing MPT would be like speaking against baseball, Mom and apple pie.

However, MPT is not the only way to achieve diversification. In fact, putting all of your money into an asset allocation program only provides diversification among asset classes; it does not diversify your portfolio among different investment strategies. Plus, some of the benefits of asset allocation, such as non-correlation, break down in bear markets.

And then there are the tired old arguments about how most of the market’s upside is concentrated into just a few days, and that missing those days would negatively affect your return. I just recently received an e-mail from a mutual fund using this old argument as a reason for shareholders to keep their money in their fund. Sorry, but as I have pointed out numerous times in this E-Letter, this is a bogus argument because it assumes you are out of the market all of the best days, but still in the market on the worst days.

An article written in October of 2008 took on those who said buy-and-hold was dead. It quoted Wharton professor and author, Jeremy Siegel, who said “That’s about the craziest thing I’ve ever heard!” He comes to this conclusion, no doubt, from his analysis of 200 years’ worth of US stock market returns that shows staying invested in the stock market over a long period is the most effective strategy for creation of wealth.

The problem is that, from an academic standpoint, the long-haul is entirely feasible. In the real world, however, the long-haul may be far too long for investors to wait for their retirement goals to be met. The article gives additional reasons that buy-and-hold is not dead, including:

You can’t time the market. Actually, I’ll agree with this one in that most investors cannot time the market on their own. That’s why I only recommend investment programs where professionals call the shots, and even they aren’t perfect.
Warren Buffett is buying. Wow, what an investment recommendation. You should buy an MPT strategy because Mr. Buffett is now buying. Note the date on the article, and then look at what happened in November of 2008. Mr. Buffett lost money. Plus, Mr. Buffett does not buy MPT programs, but rather individual companies that he feels may have value in the long run. Thus, this argument is meaningless to the average investor.
Bargains abound. In the business world, something is a bargain only if you know its true value. Unfortunately, some market analysts equate low price to equity or some other measure as being a bargain. However, just because a stock’s or mutual fund’s value is lower than it was in the past does not alone mean that it’s a bargain. Again, note that the article was written in late October of 2008 and remember what happened in November. I guess those bargains got even better.

The Bottom Line

The bottom line is that it’s not likely that buy-and-hold strategies will cease to exist. There are just too many Wall Street entities that have a vested interest in seeing them continue. At the same time, however, I think that the siren song of buy-and-hold is going to be less and less attractive to investors who have seen two bear markets decimate their portfolios over just the last eight years.

The proof is that investors are increasingly moving away from simplistic buy-and-hold strategies modeled on Modern Portfolio Theory. Those 78 million Baby Boomers we always talk about have now experienced two major bear markets just as they are entering the time they can start thinking about retirement. Just like the famous quote, they are now more concerned with the return of their money than the return on their money.

In addition, there are now many stock brokers and broker/dealers who are seeking out alternatives to buy-and-hold strategies in order to better serve their clients. In talking with the active money managers we recommend, they state that the single largest source of new interest in their programs is coming from the brokerage community that once shunned their services.

Actively Managed Strategies That Work

If buy-and-hold strategies do meet their demise, the past decade will likely be credited with being a nail in their coffin. Despite high returns during the tech bubble, and during the 2003 – 2007 market rally, major stock market indexes (and many buy-and-hold investors) are roughly where they were ten years ago. Financial journalists call it a “lost decade,” and the reality of the situation is that many investors have not been able to meet their investment goals.

In the remainder of this E-Letter, I’m going to focus on two money managers we recommend, and how they have performed over time. One investment, the Niemann Capital Management Equity Plus Program, will be evaluated over the past 10 years. Another, the Scotia Partners Growth S&P Plus Strategy will be evaluated over a shorter period of time, since it does not yet have a 10-year track record.

I wrote about both of these programs in 2008, so I feel an update is in order. Plus, these two programs offer different perspectives of actively managed programs – one moves slowly in and out of the market, while the other trades frequently using 2X leverage. Together, they allow you to have a glimpse into the world of active investment management and evaluate these strategies for your own portfolio.

From an editorial standpoint, I am sometimes asked why I limit my comments to just one or two programs in the E-Letter. The answer lies not in relative performance, but in the amount of disclosures required for each program. Regulatory rules require that we provide certain important disclosures for each program we feature in the E-Letter. I agree that these disclosures are necessary and important, so to keep the E-Letter to a manageable size, we limit the number of programs we feature in any given issue.

However, we are more than happy to provide performance information for every program we currently recommend. The information can be found on our website, along with detailed descriptions of each strategy. Just click on the following link to see performance information on all of the various actively managed investments we recommend within our AdvisorLink® Program.

Niemann’s Equity Plus Program – Master of the Universe

When reading articles in financial publications about a “lost decade,” I thought it would be interesting to evaluate some of our programs with long-term track records and compare them to the universe of mutual funds. I have seen some comparisons of investments to the top 100 mutual funds by size, but I thought it would be interesting to see how our Advisors fared compared to ALL mutual funds.

I had my staff run some mutual fund searches on our Morningstar Principia software using performance data as of 12/31/2008 with the Niemann Equity Plus Program as baseline. First, however, I eliminated mutual funds with super-high minimum investments available only to institutional investors. I also restricted the search to Morningstar’s “Distinct Portfolios,” which eliminates multiple share classes for the same fund. We then searched for mutual funds with 10-year average annualized returns greater than Equity Plus’ 10.56%, net of all fees and expenses. According to Morningstar, there were 92 such funds in existence out of a total universe of more than 7,700 mutual fund “Distinct Portfolios.”

However, return alone is not all we’re looking for. Risk management is a big part of what Niemann offers, since it will move to cash or hedged positions during down markets. As you know, we use “peak-to-valley drawdown” as one way to determine an investment’s overall risk. However, Morningstar does not provide drawdown information on mutual funds. Therefore, I used the Equity Plus 2008 performance of -11.4% as a proxy for drawdown in our Principia search.

Using the additional 2008 performance criterion, we found that there was only one non-institutional fund of the 92 noted above that could boast a 10-year annualized return greater than Equity Plus’ 10.56%, while also keeping losses to less than -11.4% in 2008. The one fund that beat Niemann’s Equity Plus program using the Morningstar filter was the MFS Emerging Market Debt Fund (a bond fund). Thus, Niemann’s Equity Plus Program showed that it beat all equity mutual funds in the Morningstar database for the last 10 years, using our search criteria and restrictions. Past results do not guarantee future performance.

However, we weren’t done yet. Recall that we use drawdown as a risk-analysis measure in all of our programs. Now that we had narrowed down the universe of mutual funds to a single candidate, we used another of our mutual fund analysis tools to obtain the maximum drawdown of the MFS Emerging Market Debt Fund. We found that this fund has a maximum drawdown of over 33%, while the Niemann Equity Plus Program has limited its worst drawdown to -18.06%.

Thus, when considering 10-year annualized return, 2008 calendar-year performance and maximum drawdown, the Niemann Equity Plus Program beat the entire universe of mutual funds in the Morningstar database. Now that’s impressive long-term performance. Past performance, however, is not a guarantee of future results.

While other time periods will likely render different results, I believe the 10-year time window is important for the Niemann program since it encompasses two different cyclical bear markets. While no one knows what the future holds, the ability to deliver a double-digit annualized return over 10 years, coupled with holding drawdowns to -18.06% or less is just the kind of performance we have come to expect from money manager Don Niemann. As always, there are no guarantees for the future.

As noted above, Niemann has been able to produce these returns by utilizing its ability to move to cash or hedge long positions in downward markets, yet the critics still say that “market timing” doesn’t work. Well, yes it does if you can find a successful manager like Niemann.

Now it’s your turn. Compare Niemann’s 10-year annualized return of 10.56% and 2008 performance of -11.4% to your current mutual funds or investment portfolio. To help you with your mutual fund investments, click on the following link to access the Business Week Mutual Fund Scoreboard website. Just enter your fund name or ticker symbol in the box and hit enter. You will then be shown detailed performance information on your fund, including a 10-year return number. Then, compare it to the Niemann Equity Plus performance. You really should do this! Here’s the link:

http://bwnt.businessweek.com/mutual_fund

For more information on the Niemann Equity Plus Program and performance, please click on the following link to access our Niemann Equity Plus Advisor Profile. If you would like for us to send you an Investor Kit on this program that contains the Advisor Profile plus documents necessary to establish an account, just click on the link for our Niemann online request form, or give one of our Investment Consultants a call at 800-348-3601.

Be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter in regard to the above performance statistics. Also, keep in mind that the universe of mutual funds on the Morningstar database consists of a wide variety of different types of funds and strategies, many of which are different from those utilized by Niemann.

Scotia Growth S&P Plus – The Best Defense Is A Good Offense

As I mentioned earlier, Niemann’s approach to the market is more of a slow and steady strategy, which I feel has been a big key to its success over time. However, this type of investment strategy is also subject to losses during the early part of a bear market, since it gradually moves to cash or hedged positions rather than moving to neutral all at once.

In contrast, there are actively managed mutual fund programs that seek to make money in both up and down markets using specialized funds that “short” the market. In addition, some investors like to up the ante by seeking out programs that not only go long and short, but do so on a leveraged basis. I characterize this type of program as being one where the best defense is a good offense.

One of the best leveraged, long/short mutual fund programs we have ever come across is the Scotia Growth S&P Plus Strategy. We first introduced this program to our E-Letter audience in June of 2008, and it has received a great deal of attention. However, when you look at Scotia’s performance over the entire year, it’s nothing short of amazing. Past performance is not necessarily indicative of future results.

Scotia’s owner and portfolio manager, Cliff Montgomery, has developed a proprietary strategy that was able to navigate the difficult market we experienced in 2008. While the S&P 500 Index lost 37% during 2008 and the Nasdaq Composite dropped over 40%, the Growth S&P Plus Strategy gained over 77%, net of all fees and expenses. While Scotia’s past accomplishments cannot guarantee favorable future results, I do think the way Cliff approaches the market merits your consideration.

And that’s not all. Though we are early in the year, our Growth S&P Plus test account has already posted a gain of over 13% as of the close of business on January 23rd, while the S&P 500 Index has lost 7.89% (excluding dividends) and the Nasdaq Composite has fallen over 6% during the month. Of course, there’s no guarantee that Scotia will end the month with a double-digit gain, but it does show that the Growth S&P Plus Strategy has continued to exhibit the potential to navigate these volatile markets.

As noted above, Scotia trades in and out of the market frequently, and typically is only in the market for a few days at time. And again, the critics say market timing doesn’t work. My clients and I know it works, especially if you can find a money manager like Scotia.

It is also important to note that the extreme market volatility in late 2008 caused Scotia to post a worst drawdown of -29.37%. While this was in line with our expectations for the program, it further emphasizes that this program should only represent a small percentage of your overall portfolio, and is generally best suited for aggressive investors.

You can access additional performance information and a full description of Scotia’s investment strategy by clicking on the following link to the Scotia S&P Plus Advisor Profile. Or, you can learn more about Scotia’s money management strategies by viewing a recording of our recent hour-long online webinar found at the following Internet address:

http://www.halbertwealth.com/webinar/sco20090114/scotiawebinar.php

And again, be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter. If you would like to obtain an Investor Kit complete with the documents necessary to make an investment in the Scotia Growth S&P Plus Strategy, please click on this link to access the Scotia Online Request Form, or call one of our Investment Consultants at 800-348-3601.

Conclusions

The weaknesses of asset allocation have long been known by those of us who have studied it closely and followed the markets. Today, it is encouraging to see that more and more investors and financial professionals are picking up on buy-and-hold’s weaknesses. However, I believe the financial services industry has far too much invested in software, sales material and training to allow MPT, asset allocation and other versions of buy-and-hold to slip into the obscurity they so richly deserve.

Even so, many in the brokerage community are reaching out to active money managers in order to have an alternative that won’t likely follow the market indexes on their roller coaster ride. This is not conjecture, but the results of conversations with our recommended money managers who are seeing a huge increase in demand for their services from former bastions of buy-and-hold strategies.

In a recent E-Letter, I touched upon this issue and asked what some brokers know that you may not know. The answer to that question is that they know asset allocation doesn’t always work. As a result, many brokerage firms are now seeking out alternatives, often led by their brokers whose clients are demanding a new approach to the market.

The fact that some brokers are now looking into actively managed programs might be an indication that it’s time for you to consider these strategies for your own portfolio. We can help. We have a 10-year head start on the due diligence and analysis required to select active money managers for our clients. If you are interested in these strategies, I encourage you to give us a call at 800-348-3601, send us an e-mail at info@halbertwealth.com, or visit our website at www.halbertwealth.com.

Wishing you profits,

Gary D. Halbert

P.S. – We often receive questions from prospective clients about how Halbert Wealth Management fits into the equation. Quite simply, we are responsible for the search, evaluation and marketing of third party money managers on behalf of our clients. In the above article, I said that most active managers are not successful in their efforts, so it is our job to separate the wheat from the chaff and offer our clients only those Advisors who we believe have the highest probability of continued success. In addition, I have my own money with every Advisor we recommend, so we can monitor the daily performance and trading activity to determine if they continue to meet our expectations.

Professional active managers typically charge annual management fees of 2-2½%, usually billed quarterly. Rather than charging an investment management fee over and above the Advisor’s fee structure for the services we provide as some do, HWM negotiates directly with the Advisor and is paid a percentage of its money management fee. So, by using HWM, clients generally pay no more in management fees than if they were to contact the Advisor directly, plus they get the benefit of our ongoing services.

Note that we always present performance information net of all fees and expenses, so you are better able to evaluate whether an Advisor is adding value over and above the fees charged. For answers to more questions about our AdvisorLink® Program, please click on the following link to review our Frequently Asked Questions publication. GDH

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IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Niemann Capital Management, (NCM) Scotia Partners, Ltd. (SPL) and Purcell Advisory Services (PAS) are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from NCM and PAS in exchange for introducing client accounts. For more information on HWM, NCM, SPL or PAS please consult their respective Form ADV Part II and Niemann’s Annual Disclosure Presentation, 2007, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor’s 500 Stock Index (which includes dividends) and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of the S&P 500 and the NASDAQ Composite Index may differ materially (more or less) from that of the Advisors, and these Indexes cannot be invested in directly. The performance of the S&P 500 Stock Index and the NASDAQ Composite is not meant to imply that investors should consider an investment in these trading programs as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index or the stocks listed on The NASDAQ Stock Market that comprise the NASDAQ Composite.

Comparisons to the universe of mutual funds in Morningstar is not meant to imply that an investment in Niemann is comparable to each or any of these different mutual funds, most of which have different strategies and investments than those used by Niemann’s Equity Plus program. The comparison is made for informational purposes only.

Historical performance data for Niemann is provided by the Advisor in compliance with the Global Investment Performance Standards (GIPS). Performance figures presented include all actual, fee-paying fully discretionary accounts in a composite. See the Annual Disclosure Presentation, 2007 for more details. Historical performance for Scotia represents actual accounts in a program named Scotia Partners Growth S&P Plus custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in these programs. The signals are generated by the use of a proprietary model developed by Scotia Partners, which is then traded by Purcell Advisory Services. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment in a mutual fund carries the risk of loss. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

When reviewing past performance records, it is important to note that different accounts, even though they are traded pursuant to the same strategy, can have varying results. The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged to an account. There can be no assurance that an account opened by any person will achieve performance returns similar to those provided herein for accounts traded pursuant to the trading programs.

In addition, you should be aware that (i) the trading programs are speculative and involve risk; (ii) the trading programs’ performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the programs; (iv) the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the trading programs’ fees and expenses (if any) will reduce an investor’s trading profits, or increase any trading losses.

Returns illustrated are net of actual management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. Returns for Scotia are deducted in full quarterly, and not accrued month-by-month. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. All dividends and capital gains have been reinvested. Some Funds also charge short-term redemption fees and excess transaction fees (Special Fees), which are billed to shareholders at the time of the event causing the fee. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.

In selecting Funds in which to invest using various analytical tools, Niemann considers the nature and size of the fees charged by the Funds. Niemann’s objective is to select a Fund only if Niemann believes the Fund’s performance, after all fees, will meet Niemann’s performance standards. Consequently, Niemann may select Funds, which have higher or lower fees than other similar Funds, and which charge Special Fees. When deciding whether to liquidate a Fund position, Niemann will take into consideration any Special fees which may be charged. Niemann may decide to sell a Fund position even though it will result in the client being required to pay Special Fees.