Fund name: Pacific Financial Tactical (PFGTX).

Objective: The Tactical Fund pursues long-term capital appreciation by investing, primarily, in other mutual funds and ETFs. Those funds cover international and domestic equity, and fixed income markets, with limited (typically less than 15%) exposure to emerging markets. It invests in between 5-30 funds.

Adviser: Pacific Financial Group (PRG). PFG is an investment advisory based in Bellevue, Washington. The firm was founded in 1984 and serves primarily relatively affluent individuals. They’ve got about $300 million in assets under management, of which 75% is in equities.

Manager: Jennifer Enstad, James McClendon, and Keith Swanson. Ms. Enstad has been a trader and portfolio manager with PFG since 1991. Mr. McClendon is the firm’s CEO and was its president from founding to 2005. Mr. Swanson has been a portfolio manager since 1994, when he began co-managing a value fund for Washington Capital Management. He joined PFG in 2003. The managers are also jointly responsible for 730 individual accounts.

Management’s Stake in the Fund: It appears that no one connected with Pacific Financial had any investment in the fund as of the latest Statement of Additional Information (April 2008). The directors clearly had no investment and the boxes used to indicate the managers’ stake were all left blank. The former is not surprising since they’re just renting a board of directors from the Northern Lights Fund Trust. The latter is regrettable.

Opening date: Either April or July 07, depending on who you ask.

Minimum investment: $5000 for all account types.

Expense ratio: 2.0% (after waivers) on assets of $23 million. The prospectus posits actual expenses of nearly 4% (including a sky-high 1% distribution fee) but the Annual Report and Morningstar both suggest that only 2% is actually charged.

Comments: The case for Pacific Financial Tactical is brief and straightforward. In a very trying year, they delivered the goods. While it does not claim to be a "market neutral" fund per se, the prospectus notes that "[t]he adviser attempts to deliver positive returns regardless of market conditions by managing the Tactical Fund’s assets in a conservative manner." The essential of that conservativism gets wrapped into unfortunate marketing language: the lead manager blends fundamental, technical and econometric analysis into "the Rational Analytical approach." I have no clue about what exactly that means, except that the fund tends to be intensely risk conscious. Mr. McClendon, for example, works at "reducing risk to its lowest level" and has an "impressive track record [which] shows consistently superior performance with low risk."

That conservatism led TPGTX to an outstanding performance in its first full year: it dropped less than 2% in 2008, which beat the average hybrid fund by 26 percentage points. In the first month of 2009, the fund posted a gain of 0.75% which led its peer group by 4.5 points. Both of those qualified as top percentile performances. The only blot on its very short record was a 2.5% loss in the last quarter of 2007, which was a modestly larger loss than its peer group’s average.

The fund’s basic strategy is "tactical" investing, where the manager doesn’t try to select individual equities but rather makes "judgments of the future return of complete markets or sectors." They then use ETFs, primarily, to turn those judgments into investments. The fund is very actively managed and they warn that they will not hold positions that have favorable long-term prospects if their short-term is going to be ugly. As a result, turnover ranges around 300%.

As of October 31, the fund had 30% of the portfolio in short- and intermediate-term Treasuries, 14% in cash, 10% in foreign currencies and 20% in bear market funds. The two conventional funds in the portfolio are PIMCO Total Return (PTTRX) and Osterweis Strategic Income (OSTIX), both of which started 2009 in the black. The managers’ current outcome, as of late January 2009, is negative on financials, real estate and tech. As a result, they were still being cautious "in this unstable time."

Bottom Line: Outside of pure bear market vehicles, a trivial number of retail funds with equity exposure (long-short, world allocation, hybrid, or whatever) have outperformed Tactical. By "trivial," I mean something in the single digits. While the exact method for selecting sectors is undisclosed (which is not, in itself, surprising), the general criteria for desirable investments are "low volatility, consistent performance and positive total returns." For investors disoriented by the market’s continued gyration but not drawn to the illusory safety of Treasury funds, Tactical has earned a spot of the short list of funds to investigate.