There are many ways to classify your assets. If you look at the 2009 annual review charts, you will notice that we have a 5 step classification system which is designed to help us understand where the money is flowing in the international financial system.

Level 1, Extremely Nervous: Money Markets, Short Term Government Bonds
When return of capital is more important than return on capital.

Level 2, Moderately Bearish: Longer term Government Bonds plus High Quality Corporate Bonds
Investors are not very positive on economic growth and not worried about inflation as a result.

Level 3, Neutral and Looking for Yield: Utilities, REITs, High Yield Bonds and Convertible Bonds
Investors are willing to take risk but don’t see strong growth in GDP or corporate earnings. Commodities also fall in this category.

Level 4, Moderately Bullish: Developed Markets, Large Cap and Liquid Equities
Investors see growth in GDP and corporate earnings but are concerned about risks to that growth in the future.

Level 5, Aggressively Bullish: Emerging Markets, Sector and Theme Funds
Investors are actively seeking more speculative markets and feel that the risks to growth are remote.

The key difference between our ranking system and a more traditional system is that we are looking to rank for where investors are putting their money. The point of the IRP System is to make use of the professional managers at the funds but to take control of the asset allocation. The difference between Core Value and Core Growth is interesting but irrelevant when investors are running for the exits. In a less dramatic sense, the IRP System will also keep you in funds for as long as they are outperforming their peers and cash. This helps avoid the temptation to take profits on winners too early.

How will 2010 turn out? We still predict that the markets will be choppy as we approach decision time on how Central Banks will exit the market and how much the developed countries will raise taxes. For actual investment ideas, watch the IRP System for the latest signals.

The IRP System is still telling us to look at Emerging Markets, Metals (Copper, Gold and Silver) and selected currencies.

In the US Sectors Portfolio, it is still Gold on top (although Silver still rates higher in the ETF Long portfolio) with Health Care making a strong move into the top 3.

On a Global Basis, the ETF portfolios are still positive on the emerging markets and metals, much like the Taiwan based portfolio.

In several of the portfolios, Technology funds and Real Estate have remained at the top of the list.

For Commodities, sugar, natural gas and copper top the list.


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