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Wednesday, July 19, 2006

Portable Alpha for Professional Investors

Financial professionals are faced with dividing time between managing existing client assets and developing new relationships. Doing so effectively can be overwhelming for even the most seasoned professional. With these circumstances in mind, Alpha Advisor Service, LLC designed its Platinum subscription specifically tailored for investment managers and brokers. Understanding that clients have varying investment styles and goals, AAS analysis included in the Platinum subscription can be applied to a multitude of various portfolio objectives. From conservative to aggressive, professionals can quickly utilize AAS analysis to manage a client’s portfolio. Less time spent analyzing the market and allocating assets means more time devoted to client relationships. For those professional seeking additional guidance, AAS has developed five model portfolios offered exclusively to our Platinum subscribers.

The first step begins with both an honest assessment of the risk your client is willing to accept and the development of a disciplined investment strategy. Click here for a Risk Profile Questionnaire which will help determine individual risk-tolerance and investment objectives. Once completed, AAS recommends that professional investors develop an asset allocation strategy that coincides with client’s risk-tolerance and investment objectives. For further guidance developing an asset allocation strategy, AAS recommends that professional investors visit the Asset Allocator provided by SmartMoney.com.

Professional Investors need to decide upon a “Top-Down” or “Bottom-Up” investment approach. Top-Down investors start with broad market analysis followed by industry and sector analysis. They decide to purchase individual stocks or funds within those sectors and industries that are performing best. Bottom-Up investors focus analysis on individual stocks or funds initially to determine which sectors and industries are performing the best. Once determined, they usually purchase funds that mimic certain sectors or indices.

As a Top-Down investor, begin with the Market Overview page to see the AAS Rating Score and Status for the Major Markets, Style Box Investments and Sectors. Also pay attention to the Technical, Fundamental and Sentiment indicators to gauge the health and direction of the market. Another possible strategy is for the Top-Down investor to use the Portfolio Builder page to determine which market segments and sectors have performed the best over the last week, month and year. Each sector and market has a link which, when clicked, shows the investor the highest AAS rated equities within that sector or market.

A Bottom-Up investor would start with the Top Ten page to determine the AAS Rating Score and Recommendations for the stocks, funds and ETF’s included on those pages. If there is a common sector or industry out-performing, consider selecting an index or fund representing it. An easier method would again deal with the Portfolio Builder page, which can be used to determine which market segments and sectors are outperforming currently.

Building a custom diversified portfolio in relation to the investment objective, risk tolerance and strategy of the client is quit easy with AAS. As with any investment decision, AAS urges professional investors to read and understand the investment prospectus prior to commitment. Because AAS includes sector and market analysis in addition to stock, fund and ETF analysis, professional investors have the ability to build and manage a complete, diversified, long-term portfolio and then augment the return by implementing portable alpha into their daily investment strategy.

Once the portfolio is established, professional investors should keep an eye on the AAS Rating Score, the “AAS Recommendation” and the Sell-Limit Watch for each position. Pay special attention to any securities that have a steadily declining AAS Rating Score. If a security currently owned no longer has an “AAS Buy Recommendation,” but the Last CP is greater than the Sell Limit Watch, this is considered a recommendation to “hold” the security. Investors have discretion over when to sell based on risk tolerances and investment objectives for their client. For guidance, AAS includes “Sell” recommendations when the security violates any of the indicators used in the analysis.

For those professional investors wishing to utilize AAS Model Portfolio’s, the first step is to decide which model portfolio(s) is appropriate for the client. Determine what percentage of a client’s overall portfolio should be allocated to the chosen portfolio(s). Commit client assets to the securities currently selected in the AAS Model portfolio. This can either be done all at one time, or spread out over several days. Review the AAS Model portfolios with each edition of the newsletter for any Buy or Sell Recommendations. If a Sell or Buy recommendation is present, AAS recommends that professionals effect the transaction that day. Finally, AAS recommends that professional investors periodically re-balance their portfolio based on their own objectives and investment outlook.

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