Highlights of the Current Issue
of The No-Load Fund Investor

From The No-Load Fund Investor, 2/10...

A Normal Correction

The S&P 500 lost about 3.7% in January, about the same as the average return of the diversified U.S. stock funds we cover. Among sectors of the U.S. market, technology performed the worst; the tech funds in our database produced an average loss of nearly 6%, as stocks in the semiconductor industry fell by double digits. Natural resources stocks also slumped. Brazil and China experienced corrections on the order of 9% to 15%.

So-called defensive issues performed relatively well. The healthcare funds we cover produced an average gain during the month of 0.6%. Consumer staples had only small losses. Most fixed-income investments went up in January, though Treasuries performed best thanks to a slight decline in interest rates.

From peak to trough in January, the S&P 500 lost about 7%. Given the 60%-plus run up since March, corrections of that magnitude are to be expected. As we discuss at length in the accompanying article, Forecast for 2010, we believe the weight of the evidence supports additional gains for equities.

Best Buys Changes/Commentary. With the exception of the Master Aggressive model, all of our Best Buys portfolios did better than the S&P 500 in January. In fact, our six Income & Capital Preservation models, which we introduced a year ago, produced small gains during the month. Though a few of our equity recommendations lost more than the market (mainly because they have significant positions in technology, natural resources or Latin American stocks), our fixed-income positions (in both the high-yield and high-quality areas of the bond market) cushioned the blow throughout Best Buys. For our current Best Buys recommendations, see the February issue of The No-Load Fund Investor.

Forecast for 2010

Despite its poor performance this January, we think the stock market can have a decent year in 2010. Corrections are likely to occur when sentiment gets overly optimistic (as it did by some measures among institutional investors in early January), but various fundamental factors lead us to believe that the market s overall direction is likely to be upward for the next six to 12 months.

We focus our market analysis on various factors in the economy, including interest rates, inflation and Federal Reserve policy, as well as on earnings, valuation and investor sentiment. The best fundamental backdrop for stock-market performance would include a combination of moderate to strong economic growth, especially coming out of a recession; modest yet declining interest rates and inflation; moderate to strong, better than expected earnings growth; and low to moderate valuations.

The current market s fundamentals stack up fairly well on these measures. The government s first estimate of real economic growth in the fourth quarter was about 5.7%. Growth in the fourth quarter appears to have been relatively well balanced between business investment in equipment and software, and consumer spending. Certainly, a lot of the growth was thanks to temporary factors including inventory replenishment, but other factors argue for decent growth, at least, for 2010. Some government spending will continue to prop up growth, while inventory restocking in private industry continues. Also, investors are likely to increase their spending, thanks to the wealth effect of considerably higher portfolio values, versus a year ago. The economy should experience more substantially the growth effects of the Fed s incredibly loose monetary policy. In late January, the nation s central bank said that the current rates of inflation (low), unemployment (high) and capacity utilization (low) were likely to warrant exceptionally low levels of the federal funds rate for an extended period. It would be unusual (though not unprecedented) for the equity market to tank while the Fed had such growth-friendly intentions.

For more on our 2010 forecast, see our February issue.

Model Portfolios

Sample Model Portfolio from the Current Issue
of The No-Load Fund Investor

Wealth Builder Portfolio

Top Twenty No-Loads

Among stock and bond funds rated in Investor newsletter only.
Includes low-loads. Latest 12 months.

#   Fund                                Obj.     % Change
---------------------------------------------------------
1.  Price Emerg Euro & Med            int l-emerg  162.8
2.  Wasatch Emerg Mkts SmCap          int l-emerg  128.0
3.  Matthews India                    int l-emerg  114.0
4.  Matthews Asia Small Cos           int l-pacifc 111.2
5.  Alpine Int l RE Y                 real estate  108.1
6.  US Glb: East European             int l-emerg  107.9
7.  Price New Asia                    int l-emerg  105.3
8.  ProFunds Ultra NASDAQ 100 Inv     agg gr       104.0
9.  Rydex NASDAQ-100 2X Strat H       agg gr       103.7
10. Legg Mason Oppty Tr C             agg gr        97.3
11. Price Latin Amerca                int l-emerg   96.8
12. Guinness Atkins China & HK        int l-emerg   95.7
13. Causeway Emerging Markets         int l-emerg   91.6
14. Vangd Capital Value               growth        90.7
15. Price Emerg Mkts. Stk             int l-emerg   90.7
16. Ariel                             growth        88.9
17. Guinness Atkins Asia Focus        int l-emerg   87.6
18. Oak Assoc: PinOak Agg Stk         agg gr        86.2
19. Oakmark Int l Sm Cap I            int l-gen l   84.2
20. Fidelity Emerg Mkts               int l-emerg   81.4