The Markets

As 2008 comes quickly to a close, the markets have stabilized and appear to have put in at least a temporary bottom at the Dow 8000 level. However, as of yet they have failed to build any positive momentum heading into the end of the year. Following the markets significant retreat in October and November (having doubled the market losses over the first nine months of the year), we are currently stuck in a trading range, with fairly solid support at around Dow 8000 and solid resistance at Dow 9600. The extremes of this range have
been tested several times, and each has held thus far. No doubt that one or both sides of this range will be tested in 2009, perhaps very early on.

The overall market environment in 2008 will almost certainly go down as one of the most damaging to investors ever. The depth of the market decline has been dramatic, but so too has the breadth – EVERY broad market segment has been negatively impacted, including large caps, small caps, mid caps, growth, value, domestic, international, real estate, private equity, commodities, and a good number of fixed income areas as well. In short, any asset that can be considered an “at-risk” asset has experienced as much or more risk than had been experienced at any other time in modern history.

But what has worked well? No-risk assets. Money-markets, CDs, “plain-Jane” U.S. overnment bonds, and not much else. As evidenced by the low yields on practically every no-risk asset available right now, the demand by the marketplace for predictability and stability has been ferocious. The 30-day U.S. T-Bill has recently been offered at NEGATIVE interest rates, and the Ten-Year Treasury today is yielding 2.53%. If there can be some value in sniffing out bubbles before they burst, the overwhelming demand for treasuries sure is acting like one.

In practicality, there really are only two true asset classes – “At-risk assets,” and “No-risk assets.” Any other dissection of assets may really be irrelevant and may actually do more harm than good. The nightmare for so many investors in 2008 is that assets that were once performing differently at different times are now perfectly correlated. In other words, diversifying a portfolio by WHAT you own (beyond a combination of at-risk and no-risk assets”) may actually do you no good. A portfolio of all “at-risk assets” (no matter what they are) has experienced losses of 35% or more so-far this year. And a portfolio of all “no-risk assets” (no matter what they are) can only produce miniscule returns over the next ten years.

It is clear that markets are not what they once were – they are more volatile, more dynamic, more laden with both opportunity and risk. What EVERY advisor needs is a way to systematically adjust their clients’ overall exposure to at-risk assets and in-turn their exposure to no-risk assets and back again, adjusting in real time as market conditions change. Having this ability is the hallmark of The Appleton Group Wealth Management Discipline, and what continues to serve our investors better than practically every other way of portfolio management.

The Appleton Group PLUS Strategy

When I was a broker, I was often mobbed by wholesalers who would come into my office and give me golf balls with their firm’s logo on them, they’d take me to lunch, they’d give us all sorts of marketing materials that I could use with my clients. That was all fine, but what I really wanted from them didn’t seem to exist back then: an approach to investing that could produce good growth during up markets, but that also managed to keep investment losses low during bear markets. In short, I wanted an approach with my clients that kept them
“on the right side of the market” so that when the market was doing well I’d automatically have more of my client’s assets invested in the markets, but when the market was doing poorly I’d have less of my client’s assets at risk. I wanted what my clients kept telling me THEY wanted – wealth management that was proactive, that produced reasonable returns over time, and that managed risk along the way. After years of not having access to such a discipline, I decided to launch it myself.

Years later, The Appleton Group PLUS Strategy, offered in both a separately managed account format as well as an open-ended mutual fund format continues to add significant value to advisors across America. The Appleton Group PLUS strategy systematically adjusts the overall asset mix of the portfolio between “at-risk assets” and “no-risk assets” in real time as market conditions change. This highly flexible and market responsive strategy is designed to participate in sustained market advances (offering the potential for marketlike
returns during favorable environments) and to manage the risk of large losses resulting from sustained market declines (working to insulate investors from large losses during unfavorable markets).

Looking Forward

Obviously the performance of the markets (and consequently the performance of many growth investments) has been on the front of clients’ minds all year. With the market losses having been so sizable, many clients are understandably concerned about risk, yet at the same time they don’t want to miss out on the recovery. For the equity markets to get back to their year-end 2007 levels, they now have to advance by staggering amounts ranging from 51% for the Dow Jones Industrial Average, 65% for the S&P 500 Index and 74% for the
NASDAQ Composite. Any sustainable advance back toward recent highs could result in sizable capital gains,

which investors would certainly want to participate in to as large a degree as possible. While not likely to occur over the short run, preparing for this possible market advance now makes so much more sense that reacting after that advance has already taken place. But along the way, investors are also demanding proven methods for managing investment risk.

For 2009, we believe that investors will demand solutions to this dilemma: wanting to participate in the sizable opportunities that exist as a result of a bear market with the need to manage risk along the way. More than ever, clients are demanding that advisors seek out those disciplines that have worked the best through both good and bad markets, and The Appleton Group PLUS Strategy is an attractive option for your portfolios in 2009.

There’s never a bad time to increase the overall efficiency of your investment approach, and it is better to hear about real solutions from their current advisor than from a competitor. Doing so makes your client a “client for life,” and can be a solid source of referrals for those advisors that can provide time-tested solutions.

As you enter 2009, you have the opportunity to make a real difference in the financial lives of your clients, and you have the opportunity to expand your book of business with prospects that are in need of meaningful help.

Our institutional sales staff stands ready to assist you in your client retention and development efforts in 2009, and we invite you to add The Appleton Group PLUS Strategy as a core component of your client’s growth portfolios.

(c) Appleton Group Wealth Management, LLC

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