Comparison: Mutual Fund Screening Systems
|MUTUAL FUND SCREENING|
The thought of sifting through thousands upon thousands of mutual funds to select a single fund can be quite an imposing task. With the number of mutual funds surpassing the number of publicly traded stocks, how can you narrow the scope? One answer is screening.
Screening involves setting up a list of parameters, or criteria, that you can use to find a group of funds that have similar characteristics. While you could use a financial newspaper, magazine, or book to narrow your choices, the screening process is most easily accomplished using a computer.
Software packages offer some form of data service with the screening capability built into the software.
Subscribers receive periodic data updates via a CD-ROM disk or the Internet. A software program is worthless without these data updates. Likewise, the data is only as useful as the flexibility and power of the program’s screening function.
An abundance of Web-based screening tools allow investors to perform screening on-line. The software is either downloaded to your computer in an invisible fashion or the screening criteria are established through forms on your Web browser. Screening is actually performed on a central computer and the screening and ranking results are sent back to your computer.
Mutual fund screening systems enable an investor to quickly locate a few funds that meet personal risk, return, and management style needs. For example, if you determine that your portfolio is lacking small-cap stock diversification, a screening program can quickly come up with a list of no-load mutual funds open to new investors with consistent performance above the average for small-cap funds, acceptable risk, and below-average expenses.
The screening criteria dictate how the database is filtered. It is important to select a system that provides the flexibility to create effective screening criteria along with a database that provides a rich set of data fields suitable for screening. The more criteria you input into the screen or the tighter you make the values for each, the fewer the funds that will pass your filter.
Critical elements to consider when choosing a mutual fund screening application include:
- the number of funds in the complete universe,
- the number and types of fields that can be used for screening and sorting, and
- the conditions and values that can be specified for each field.
The key function performed by mutual fund applications is monitoring, or the comparison of a fund’s performance. While performance comparison is primarily done through screening, a worthwhile feature of any good mutual fund screening system is the ability to easily and clearly present how well your fund investment did against other funds or benchmarks.
Current monitoring presentation standards include sophisticated charting functions, reports for specific time periods and fund comparison reports that make monitoring easier and more comprehensive. In the most powerful programs, the performance of an appropriate index, an average for a fund investment objective, and the performance of other similar funds can all be displayed in tables and charts along with the performance of a particular fund for any period selected.
A comprehensive data set should cover the universe of mutual funds—currently exceeding 20,000. However, this total includes money market funds and funds with multiple class offerings. Multiple class funds provide the same basic portfolio and are divided into various offerings segmented by fee structures or, in some cases, by minimum initial investment requirements.
Alternatively, the universe should match the universe of funds that you consider for your portfolio such as no- or low-load funds. The comparison grid shows the number of funds tracked by each program or service, the number of data fields reported for examination through reports, and the number of fields that can be used for screening and ranking.
Frequency of Updates
Mutual fund screening programs and services are typically sold as subscriptions. Typical update schedules are monthly or quarterly for the disk-based software programs, while the Internet systems often have some performance statistics updated daily. Your interest in monitoring the performance of your mutual funds, your desire to screen for new funds and, finally, your budget will ultimately steer your decision. The comparison grid indicates the data update schedules available for each application along with the associated costs of each.
Fund Data and Details
Along with the size of the data set and how frequently it is updated, you also want to consider how comprehensive the data is on each fund.
The analysis of an individual fund and the examination of fund details hinge on the amount and organization of information presented. Information generally falls into four main categories:
- performance statistics,
- risk-related data,
- fund portfolio information, and
- fund operations and services.
Risk measures range from standard deviation and beta to risk indexes and risk deciles. Risk-adjusted returns using return-to-risk ratios such as the Sharpe ratio or Treynor ratio may be included. Alpha, another risk-adjusted performance measure, and R-squared, a measure of diversification, are usually grouped with beta. For fixed-income funds, average portfolio maturity is usually reported, while some services also report the average credit quality of the bond holdings.
Fund portfolio information can be very expansive or quite meager, but more often than not it is just a brief synopsis. At the extreme, a program might offer details resembling a typical annual report along with calculated portfolio statistics that attempt to capture the portfolio manager’s investment style and approach. Portfolio breakdowns by percentage in cash, stocks, etc., are minimal descriptions of portfolio position. A listing of top stock holdings with portfolio percentage representation and a portfolio breakdown by sector or industry weights is useful in understanding investment strategy. The most comprehensive programs also include average price-earnings ratio, price-to-book-value ratio, earnings growth and dividend yield for all stocks in the portfolio. For bond funds, weighted average coupon, maturity and credit rating are reported. Fund operations and services describe loads, fees and expenses along with fund initial and subsequent investment minimums. You may also find the fund manager’s name and tenure in addition to the fund telephone number and other fund features, such as automatic withdrawal and investment programs.
For the software applications featured in this comparison, mutual fund data typically arrives on a CD-ROM disk. When the data is distributed via CD-ROM, it is installed and stored on your computer and screening and analysis information is at your disposal. With some applications, certain information remains stored on the CD-ROM to keep from overburdening your hard disk. All of the disk-based screening programs permit subscribers to download partial or complete database updates through an Internet connection while the CD-ROM is being produced and mailed. Internet-based screening systems allow you to perform the screen on-line; results are returned to you in the form of a Web page with links to quotes, news and other information.
Internet screening utilities usually offer more limited screening power and somewhat reduced data sets compared to software. However, some of the fee-based Web entries from vendors such as Morningstar.com and SmartMoney.com provide combinations of detailed data and versatile screening tools. When comparing these options, keep in mind how much data and screening functionality you actually need.
Because these programs are delivered on a CD-ROM, they offer sophisticated screening and reporting capabilities. Look for CD-ROM-based software to offer the most in terms of depth and range of data due to their large storage capacity. Accordingly, disk-based programs also carry higher costs than Internet screening services.
Morningstar supports two versions of their powerhouse mutual fund screener: Principia and Principia Advanced. Both programs cover over 14,000 funds. Principia provides over 150 fields, all of which are available for screening and ranking. Principia Advanced is geared more toward professional investors and investment advisers. It features more than 1,000 data fields, with over 150 available for screening and sorting as well as the Advanced Analytics package that provides “under the hood” details and insightful information on individual funds. Principia Advanced also features more than 1,500 printable Mutual Fund data pages. The extra data and reports are what actually separate the two applications. Otherwise the screening tool and the primary data set are exactly the same—a key consideration when choosing between these two software siblings.
Both programs feature the presentation tool Portfolio Developer, which allows users to construct hypothetical illustrations of portfolios. Both also integrate with a stock screening database sold separately, allowing users to analyze a portfolio of stocks and funds.
Both programs also include an easy-to-use, on-screen filtering utility and even display Morningstar’s equity and fixed-income style boxes in their main database pages.
The Principia programs offer an annualized return for the trailing 12-month period and individual performance returns for the last 10 years for Principia and the last 15 years for Principia Advanced, as well as the latest month and latest quarter. The programs include a fair amount of risk-related measurements and a nice array of portfolio information.
The team of Principia programs does an excellent job of mutual fund screening and analysis and continues to solidify Morningstar’s position as an industry leader in the world of mutual fund data and screening applications.
Mutual Fund Expert from Steele Systems comes in three versions: a Personal version, a Professional version, and a Pro-Plus version. The three programs include an impressive database of over 15,000 mutual funds (including money market mutual funds and multiple class funds) and are available in monthly, quarterly and one-time updates. The main difference between the three is in the detail of information supplied for each fund.
The Personal version features a roster of 92 data fields and performance returns for the last 12 months, last four quarters, and the last 10 years, as well as three-, five- and 10-year annualized returns.
The Professional program includes the same set of performance returns as Personal and 227 data fields for screening and ranking. Professional and Pro-Plus feature greater risk-return related coverage—including both the Sharpe and Treynor ratios. The Professional version has expanded its portfolio information, providing additional data beyond asset allocation and sector breakdown including a list of the top 10 holdings, average portfolio price-earnings ratio, average bond quality rating and maturity.
Pro-Plus offers a more robust 683 data fields and has complete performance returns from 1962 to the present. Pro-Plus portfolio details include information on the fund manager, the fund’s portfolio composition, the largest holding of the fund, and the percentage of the fund that is invested internationally.
Screening and reporting capabilities are strong for each of the respective Expert programs, with Pro-Plus allowing even the most sophisticated mutual fund investors to perform any and all necessary filters in order to select funds. The programs are easy to work with and all have the same interface. Not only is the Mutual Fund Expert software powerful, it is also generally easy to use. The program features a multiple-tab worksheet-like interface. If you are comfortable working with spreadsheets, you will find it easy to examine the mounds of data provided by this program. The unique quick-reference toolbar on the main database page is a nice feature that makes for easy navigation. The step-by-step process of the screening module can be a little confusing at first, but once users get the hang of it, creating screens should be simple.
Overall, the Mutual Fund Expert programs are top-notch fund screening applications and perform the necessary tasks for effective fund analysis.
Mutual Fund Survey
Mutual Fund Survey for Windows is a CD-based screening program from Value Line. Based on the printed Value Line Mutual Fund Survey, this electronic version includes a larger database (11,000-plus funds) of both load and no-load funds. Mutual Fund Survey is updated each month and offers a weekly performance data update via the Valueline.com Web site.
Mutual Fund Survey includes performance returns for the latest month and last two quarters; annualized returns for three, five, 10, 15, and 20 years; and individual returns from 1977 to the present. Mutual Fund Survey includes a formidable amount of risk-related statistics and portfolio information, such as the largest holding of the fund and the percentage of the fund in foreign securities.
The program offers extensive screening and complete reporting capabilities. With an easy-to-use interface and seamless drop-down menu toolbar—not to mention a recent drop in the price—Mutual Fund Survey remains a solid screening tool that performs sound fund analysis.
All of the Internet-based mutual fund screening services listed here are either completely free or at the very least offer some form of free screening. Free screening capabilities as well as fee-based screens are available at Morningstar.com, SmartMoney.com and Wall Street City. The majority of the fund data currently available on investment-related Web sites is supplied by Morningstar. Of the Internet services discussed in this article, only two do not use Morningstar mutual fund data. Those sites that provide free mutual fund screening require you to register with the site.
Business Week Online combines editorial content from Business Week, mutual fund data from Standard & Poor’s, and portfolio management and screening modules from Wall Street City to offer a one-stop investment center. The Investing section hosts a mutual fund screening tool to go along with its library of current and archived articles and special reports on fund analysis.
The Mutual Fund Search module is free to registered users and is powered by Standard & Poor’s Micropal database. The screening interface comes with a nice “add another row” feature for each of its screenable fields. With this add-on function, multiple returns can be stipulated and several risk measures can be utilized in one screen. For example, you can screen for both short-term performance, say the fund’s latest monthly return, as well as a 10-year annualized return all within the return field category. With this feature, you can also create absolute filters for each individual data field. Mutual Fund Search includes 30 screenable fields, and up to five columns of data can be used for sorting the results.
Basic S&P reports, free to registered users, provide over 150 data fields on mutual funds. Returns available here include: daily and weekly returns; performance total returns for the latest month and six months; annualized returns for three, five, and 10 years; and individual annual returns for each of the last five years. Relative performance comparisons are versus fund peer group and versus the S&P 500. Risk-related features are quite formidable—with R-squared and the Sharpe ratio as part of its roster—and portfolio information includes the fund’s capital gains as well as a fund asset allocation breakdown and a list of the fund’s top 10 holdings.
Business Week Online’s Funds section also comes with a set of pre-packaged S&P-developed screens that filter for top performers and top-yielding funds.
Business Week Online features solid mutual fund analysis tools and reports. For the individual investor, this is definitely a site worth checking out.
Microsoft and CNBC offer a complete personal finance and investing resource through their free Web site. The investing section offers portfolio tracking, charts, news, educational articles, stock and mutual fund research, and brokerage services. Access to articles, news, screens, company and mutual fund data, and portfolio tracking is free to all Internet users.
As revealed in the comparison grid, the fund coverage is both broad and deep. The screening flexibility is above average among Internet vendors. The screening editor is an ActiveX program that we were able to run on Windows-based systems using either Internet Explorer or Netscape browsers. On Mac systems, however, MSN displays a more basic Web-based screening module.
Screening is interactive with passing companies displayed as criteria are added. Screening criteria are selected from a menu of nine different categories and input one at a time. The results are displayed directly below the screening module, allowing you to easily adjust screening criteria or any additional filters. And as with software, users can save screens. Users can either design their own screens or select from a list of pre-packaged screens.
The Fund Screener offers performance returns for the latest quarter and three-, five-, and 10-year annualized returns. It does not offer any kind of monthly total return, or any individual year returns—two clear misses. A standard set of risk-related statistics as well as several data points showing relative performance versus fund category are available.
CNBC on MSN Money is a solid offering that meets the standard individual investor’s requirements for fund screening quite nicely.
The majority of the news, data, reports and tools found on Morningstar’s home page are free to registered users. There is a subscription-based portion of the site as well. For $11.95 per month, Premium Service members gain access to an expanded set of research and analysis capabilities. The Fund Screener utility features both a standard, free version as well as an advanced product available only with a subscription to Premium Service.
The free Fund Screener features separate menus for selecting 19 criteria in a single screen. The Premium Service Fund Screener is a more powerful mutual fund screener that features more screenable data fields than the free version—over 150 versus just 19. The Premium Fund Screener is much more intuitive of a screening application and offers more screening options. Criteria selection is seamless and dynamic screen results appear on the same page for easy adjustment of the criteria.
Extensive data is available through both the free and fee-based offerings on Morningstar.com. However, Premium Service does provide access to proprietary analyst reports that extend discussions on individual fund prospects.
Additional mutual fund screening and comparison tools available for free at Morningstar.com include a quick and easy Fund Quickrank screener and a Fund Compare utility, which allows you to evaluate funds against one another, testing for the better returns, the higher ratings, and more.
For the individual investor looking to conduct basic mutual fund screening, the free services at the Morningstar.com Web site should work just fine. However, if you are looking for more multi-dimensional screening capabilities, check out the Premium Service edition of the Fund Screener. A free trial of Morningstar.com’s Premium Service is available.
Intuit, Inc., the makers of the popular Quicken software program, maintains a mutual fund screening application, the Mutual Fund Finder, at their free personal finance Web site.
The Mutual Fund Finder offers performance returns for the last 12 quarters and individual returns for the last 10 years along with annualized returns for three-, five-, 10-, and 15-year periods. It does not offer any kind of monthly total returns. A fair amount of screening choices are present, but users cannot screen using risk factors. Fund reports do, however, feature several risk-related measures including alpha, beta, and the Sharpe ratio. The coverage in terms of portfolio information is quite competitive as well; fund manager, asset composition and the largest holdings of the fund are provided.
The site offers an interesting educational tool called The Fund Evaluator designed to help investors better understand and digest the information found in fund reports and to help them make better investment decisions based upon what they discover. The Fund Evaluator is set up like a step-by-step tutorial and has three main sections: return vs. risk, fund holdings, and cost of ownership. This tool is full of raw data, but also offers rankings of key data points throughout for easier comparison. The rankings are based on how a fund compares to its category average.
Quicken.com also features a group of popular screens based on popular mutual fund investing strategies as well as a step-by-step screen developer module designed to help novice screeners create meaningful fund screens.
Mutual Fund Finder on Quicken.com is a basic filtering application for mutual funds. Screening capabilities are below average but get the job done. For an individual looking to perform basic fund screening and analysis at no cost, this is a site worth browsing—if for no other reason than to see what kind of insights the Fund Evaluator can provide and if it can help you improve your fund analysis skills.
SmartMoney magazine’s Web site offers both a free fund screening tool (Fund Finder) and a premium screening system (Fund Screener) through its fee-based SmartMoney.com Select subscription.
The free Fund Finder offers users a unique screening experience. A crisp, five-tab module guides you through the creation of screens using 30 variables and offers assistance by providing low, average, and high statistics for applicable fields, such as historical returns. These statistics are based upon all funds in the current database. One drawback of the Fund Finder is that results are only posted once the screen has filtered the database down to a respectable viewing level—under 50 funds, according to our tests.
The premium Fund Screener offers access to over 60 screening variables and allows comparisons to a wider range of indexes and averages. The premium screener is interactive, allowing you to view the results as the criteria are added and modified. Results can viewed as a table, histogram or thumbnail one-year price chart of each passing fund. The histogram displays how each passing fund compares relative to all funds for each of the screening criteria. This one-of-a-kind feature includes points plotted along the range as well as the specific number for each fund. The beauty of this tab’s display is that it allows users to quickly pick out the outliers and find the norm for each value.
Screening criteria can be saved for use at a later time and data can even be exported for use in a spreadsheet. The screening programs and their accompanying fund reports are updated on a daily basis, with one-day and one-week returns.
Overall, SmartMoney.com’s fund reports are very detailed and comprehensive. Several Java-based graphical charts and meters are also scattered throughout the fund report. These graphics provide an additional, unique perspective on fund analysis. The interactive lot includes a return comparison graph, a risk-reward trade-off chart, a fund holdings overlap meter, and a fund fee analyzer chart. Several “Take Note” charts and meters highlight any unusual numbers that SmartMoney thinks you should be aware of. SmartMoney offers a unique and helpful set of screening tools and data that sets this Web site apart from the competition and makes it a site worth investigating—even if you utilize it in addition to your primary mutual fufnd screening software or on-line screener.
ThomsonFN.com offers a basic screening module but detailed mutual fund data. The screening tool has a multi-page interface that makes for somewhat slow screen creation. Like SmartMoney.com’s screening systems, the Thomson screener also offers S&P 500 and database averages as reference points throughout the screening process.
The TipSheet report includes a summary of performance statistics while a full report provides over 350 data fields. The full report has tons of data. Users might want to check out ThomsonFN.com if they are interested in conducting some secondary screens utilizing short-term performance variables.
|TABLE 1. Mutual Fund Screening System Ratings|
|Criteria are rated on a scale of one to five, with five denoting the best score. Performance rates how well the program or service accomplishes its stated objectives; Documentation rates the quality of the printed materials, on-line help, and manufacturer support; Ease of Use rates how simple the program is to install, learn and operate.|
|Performance||Documentation||Ease of Use|
|Morningstar Principia Advanced||5||5||4||5|
|Mutual Fund Expert Personal||5||4||4||5|
|Mutual Fund Expert Pro||5||5||4||5|
|Mutual Fund Expert Pro-Plus||5||5||4||5|
|Mutual Fund Survey||4||4||3||5|
|Business Week Online—Mutual Fund Search||3||4||4||4|
|CNBC on MSN Money||4||4||5||5|
|Morningstar.com—Fund Screener Free Service||3||4||5||5|
|Morningstar.com—Fund Screener Premium Service||4||5||5||5|
|Quicken.com—Mutual Fund Finder||2||4||3||4|
|SmartMoney.com—Free Fund Finder||3||4||5||5|
|SmartMoney.com—Select Fund Screener||5||4||5||4|
|Wall Street City—Mutual Fund Power ProSearch||3||4||4||3|
Wall Street City—Mutual Fund Power Prosearch
Telescan’s home on the Web, the Wall Street City site, features a Java-based module, this one entitled Mutual Fund Power ProSearch. The Power ProSearch screening module is available with a Wall Street City ProSearch subscription costing $9.95. The site also provides a free, generic utility called the Mutual Fund html Search. This tool features the exact same screening options as the Java-based application, without the dynamic capabilities and functionality. The presentation quality is also lacking—the fields are not categorized or labeled here, rather they are simply listed in alphabetical order. The fact that both feature the same set of fields is quite odd and makes Power ProSearch’s Java-based screening option a rather expensive luxury.
Offering a software-like appearance, the Power ProSearch’s interface includes five field-picker categories including performance, composition, and premium. The criteria found in this premium group are exclusive to Telescan and Wall Street City. An example of such a premium field is “down-market premium,” or the average annual percentage premium a fund has delivered against its index in those quarters that the benchmark index delivered negative returns. There are 39 such premium-style fields available. These same premium fields are available with the standard html screener, but not categorized as such.
Wall Street City features solid fund reports from Morningstar—the same free 250-plus data field Quicktake reports found on Morningstar.com. Database content is quite solid, especially in terms of performance, where Morningstar provides latest month and quarter returns as well as a year-to-date return and three-, five-and, 10-year annualized returns. Similar relative performance, risk, and fund portfolio information are also substantial offerings. One major drawback, however, is that much of this data is missing in the Power ProSearch module itself, where performance return criteria is only available for the annualized years. This miss is a little odd and a clear negative of the site’s screening tool. The same fields are absent on the free html screener as well.
Some unique fund criteria that are present in the screening applications on Wall Street City are four relative performance returns—indicators that measure a fund’s performance against its own history. They include periods of one day, one week, six weeks, and 26 weeks. These indicators compare a fund’s current price with its price at an earlier period. For example, a fund that has moved from $10 six weeks ago to $15 today would have a six-week relative performance of 150—150% of its previous price. Criteria such as these are most frequently used to find funds that have shown the greatest gains in price and work best when applied in the form of “high as possible” relative criteria as opposed to absolute criteria.
A multitude of various mutual fund screens and packaged searches are available for free on Wall Street City. Top 25 lists are available for stock funds and bond funds. The site’s Prospector runs over 35 million search criteria combinations in order to find the screens that have worked the best or worst over the last 12 months. Lists of the 15 best-performing screens and worst-performing screens are updated and presented each week on the site. Also available are top 25 lists of the best and worst mutual fund screening criteria, or indicators, over that last six months.