Kinetic Financial employs advanced screening techniques in order to pick the best mutual funds for the prevailing market conditions.

Ultimately, Kinetic Financial looks for funds with the following characteristics:

• Smooth and consistent performance during up and down markets in the past 12 to 24 months
• High liquidity (small or no entrance/exit fees)
• Hedging during market downturns
• Better performance compared to benchmark indexes and peer group
• High upside potential

Kinetic Financial starts from a universe of over 17,000 mutual funds and narrows down fund selections based on:

• Trailing performance (e.g. 3-month, 6 month, year-to-date, 12-month, and 24-month performances)
• Transaction Fees, Sales Loads, and Redemptions Fees
• Brokerage availability
• Rank in category
• Minimum initial purchase requirements

Kinetic Financial then analyzes every peak the mutual fund has had in the past 12 to 24 months and the percentage drop to its bottom.  Kinetic Financial then compares these drawdowns to the drawdowns of benchmark indexes and mutual funds.  This peak-to-bottom analysis provides a measure of risk.  It measures how much money we would have lost if we invested in the fund at its peak value during a down market.

The largest peak-to-bottom percentage for a fund in the last 12 to 24 months is one parameter that helps determine thresholds of the funds general Risk/Reward behavior. Kinetic Financial uses the largest peak-to-bottom percentage as a factor in an "exit strategy" for the fund.

During down markets, Kinetic Financial also closely monitors the funds’ rank in category.  Kinetic Financial likes to track funds that consistently outperform their peer group during down markets.  This parameter is another contributing factor for the exit strategy.

Kinetic Financial also determines a fund’s peak-to-bottom setback time for each down market in the past 12 to 24 months.  The peak-to-bottom setback time measures the amount of appreciation time that was lost as a result of a price drop. For example, a fund that drops 5% and has an appreciation setback of 12 months is worse than a fund that also drops 5% but has a setback of 2 months.

Finally, Kinetic Financial determines the bottom-to-top percentages for each up market in the past 12 to 24 months.  The bottom-to-top percentages provide a measure of reward.  A fund that has a bottom-to-top percentage of 10% in an up market is appreciating faster than a fund that has a bottom-to-top percentage of 5%.

For example, to the right is a 6 month chart for AIM European Small Co Fund (ESMCX) compared to the index EFA (an exchange traded fund that tracks MSCI EAFE).  The international market was generally down between March and July of 2005.  Both ESMCX and the index fund EFA dropped about 7% from their peaks in March.  However, ESMCX only had setback of 1.5 months before recovering. On the other hand, EFA had a setback of about 3.5 months. The bottom-to-top percentage of ESMCX was 30% compared to 12% for the index EFA.  Clearly, ESMCX consistently outperformed its index during this time period.  ESMCX also outperformed its peer group as of September 2005. 

Kinetic Finacnial believes that all high performing mutual funds have a lifecycle.  Although an investment looks good today, there will come a time when the investor is better off by redirecting the investment.  Kinetic Financial provides an "exit strategy" for that purpose.

Some of the fundamental reasons why mutual funds can eventually under perform include:

• The fund’s assets grow too large making it more difficult to manage.
• Market trends shift and no longer favor the fund manager’s investment strategy
• Management changes
• Portfolio strategy changes
• Economic and political conditions

Kinetic Financial tracks these conditions carefully and lets you know when a fund’s performance no longer lives up to our expectations.