Adding 'Shock Absorbers' to an Investment Portfolio

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Scott Noyes of Noyes Capital Management LLC, believes that it is important to design portfolios that people can live with. He uses built in “shock absorber” mutual funds in his portfolio designs. These consider investor emotions and recognize that investors’ appetite for stocks change with market conditions. When individual investors attempt to time the market, they often get it wrong.

Scott P. Noyes is the President of Noyes Capital Management, LLC (http://www.noyescapital.com), a fee-only investment management firm located near Morristown, NJ. Scott has over 24 years of securities industry experience and was the past President of Aubrey G. Lanston & Co., a primary dealer of U.S. Treasuries. With particular strength in portfolio design, Scott has earned his CFA®, CFP® and several other designations.

Scott believes that it is important to design portfolios that people can live with. He uses built in “shock absorber” mutual funds in his portfolio designs. These consider investor emotions and recognize that investors’ appetite for stocks change with market conditions. When individual investors attempt to time the market, they often get it wrong. By investing in “active allocation” mutual funds, you let the professionals use their timing talents. This approach will vary your overall portfolio’s stock and risk exposure depending upon their market outlook. Scott’s portfolio designs allocate approximately 15% to these allocation funds. His favorites are:

1) The Leuthold Core Fund (LCORX) has been an excellent performer. Leuthold uses a model based system with human oversight, to choose sectors and market allocation. This fund can vary its equity allocation between 30% and 100% and averages around 70%. This fund has been an exceptional performer, earning 14% in 2005, 8% in 2004 and 47% in 2003.

2) The Pimco All Assets Fund (PAAIX or PASDX) may be considered a bond fund on steroids. It actively invests among a variety of asset classes using other PIMCO mutual funds. It is also permitted to invest up to 50% in equities but rarely goes over 30%. The manager, Robert Arnott, often uses PIMCO Real Return funds that include TIPS, real estate, emerging market bonds and floating rate bonds. Scott believes that this approach may give you the best of PIMCO. This fund earned 5.8% in 2005 and 11.1% in 2004.

3) Oakmark Equity and Income Fund (OAKBX) is a great stock picker and core holding. This allocation fund maintains their investments between 50% and 70% in stocks and knows how to find the hot sectors. Oakmark is a highly respected research company and the fund benefits from their team approach. This fund earned 8.6% in 2005, 10.4% in 2004 and 23.2% in 2003.

Scott Noyes believes that by adding a combination of these “shock absorber” mutual funds to your portfolio, you will compliment your core stock and bond holdings. They should help reduce your portfolio’s volatility, increase your diversification and enhance your expected returns over time. By letting these funds retreat during tough times, and be aggressive during bull markets, you are allowing professionals to protect you.

Disclaimer: The investments featured above are for readers to consider and do not constitute an offer to sell by any advisor, nor to they represent a recommended investment portfolio.

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Dan Noyes