Mutual Fund Screening Services

Selecting and managing a portfolio of individual stocks and bonds can be time consuming and expensive. Investing in mutual funds is a cost-effective way to hold a diversified portfolio.

However, there are tens of thousands of different mutual funds in existence, and the explosion of exchange-traded funds ETFs gives us even more choices. It can be difficult to pinpoint funds that fit your investing goals, needs and expectations.

For investors who prefer to make these decisions without the help of an advisor, mutual fund screening software and Web sites exist that may assist with decisions.

In years past, we have published descriptions of all disk-based and on-line mutual fund screening tools that we’ve found useful. To make better use of our resources and your time, this article will highlight the few that we consider the best of these tools, giving more detailed information about each program. An expanded comparison that includes an additional software program and four additional on-line tools that are worth a look can be found with the on-line version of this article at www.computerizedinvesting.com.

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An Overview of Screening

Mutual fund screening involves choosing criteria to find a group of funds with similar characteristics. Mutual fund screening systems allow you to find multiple funds that meet your risk, return and management style requirements quickly and easily.

For example, if you determine that your portfolio is lacking international equity diversification, a screening service can provide you with a list of no-load, internationally oriented mutual funds with consistently above-average performance as compared to the average of all international equity funds, with acceptable risk levels and below-average expenses.

Both disk-based and Internet-based services are available to assist you in finding the right fund to invest in.

Software programs often have high-powered and highly flexible screening capabilities. Subscribers receive periodic data updates, usually monthly or quarterly. Software programs can be costly, but for investors wanting a plethora of statistics, data and more control to create unique and in-depth screens, they might be worth the extra money.

Web-based screening tools have made mutual fund screening more accessible and effortless. The software is either downloaded to your computer or the screening criteria are established through forms on your Web browser. Recently, sites with on-line fund screening tools have improved their offerings, and they now provide flexible screening tools with a wealth of data for free or at a reasonable price.

It is important to select a system that provides a wide variety of criteria for screening and has the flexibility to create effective screens. The number of funds in the database, the number and types of criteria that can be used for screening and sorting, and the flexibility of the conditions and values that can be specified for each criteria are all important factors to consider and compare between services.

Comparing Fund Performance

The ability to compare a fund’s performance with that of other funds, indexes and benchmarks is a powerful tool. While these performance comparisons are primarily done through the screening process, a great feature of a mutual fund screening system is the ability to present the comparison results in user-friendly charts, graphs and tables.

Sophisticated charting functions, reports for specific time periods and fund comparison reports ease the burden of monitoring your investments. In the most powerful programs, the performance of an index, an average for a fund investment objective, and the performance of other similar funds can all be displayed with the performance of a user-defined fund using line graphs and bar charts for any time period selected.

Fund Universe & Screening Criteria

A comprehensive data set should cover the universe of non-money-market mutual funds and, if they are of interest to you, ETFs. Over the past few years, ETFs have exploded in popularity and many programs now include them in the fund database and offer specialized ETF screening tools.

The disk-based services tend to offer a larger database of funds for screening.

For a mutual fund screening tool to be of use to you, the universe it offers must match the universe of funds that you wish to consider for your portfolio, such as no-load or low-load funds. The comparison grids show the number of funds tracked, the number of data fields available and the number of fields that can be used for screening and ranking in each program.

Frequency of Updates

Mutual fund screening software programs are typically sold as subscriptions. Update schedules are usually monthly or quarterly, via a CD-ROM disk or a password for downloading new updates on-line. How much you plan to monitor performance, your desire to screen for new funds, and your budget will be the deciding factors when choosing an update schedule.

The comparison grid indicates the update schedules available for each application along with the associated costs of each. Note that the mutual fund data on most on-line services is updated only monthly. Items such as price charts and net asset value may be updated daily, but most other data elements are tied to a monthly mark-to-the-market.

Mutual Fund Data and Information

Another important feature of any screening tool is the amount and types of data provided for each fund.

The analysis of an individual fund and the examination of fund details hinge on the amount and organization of information presented. Information tends to fall into four categories: performance, risk, fund portfolio information, and fund operations and services.

Performance statistics usually include annual total returns and annualized total returns over one-, three-, five- and 10-year periods and longer. Returns for shorter periods, usually year-to-date, one month, three months and the last 12 months are also common. Performance is also often reported as a difference from an index, such as the S&P 500, or from a category average. Percentile or decile ranks for performance are sometimes used to put the absolute performance differences into perspective.

Risk measures include standard deviation, beta, risk indexes and risk deciles. Risk-adjusted returns using return-to-risk ratios such as the Sharpe and Treynor ratios may also be reported. Alpha (another risk-adjusted performance measure) and R-squared (a measure of diversification) are usually grouped with beta. For fixed-income funds, you should be interested in the average portfolio maturity; some services also report the average credit quality of the bond holdings.

Fund portfolio information can vary from one program to the next, but more often than not it is a brief synopsis. 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 percentages provide minimal descriptions of portfolio positions. Listings of top stock holdings with portfolio percentage representation and portfolio breakdowns by sector or industry weights are useful in understanding the fund’s investment strategy and diversification. 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, averages for coupon, maturity and credit rating are reported.

Fund operations and services describe loads, fees and expenses along with initial and subsequent investment minimums. You may also find the fund manager’s name and tenure in addition to the fund telephone number and fund services (such as automatic withdrawal and investment programs).

Distribution Methods

For the software applications featured in this comparison, the mutual fund data update either arrives on a CD-ROM disc or is downloaded from the software company’s Web site to your computer. The data is installed and stored on your computer and screening and analysis information is at your disposal.

Internet-based screening programs allow you to perform the screen on-line. The service returns the results to you in the form of a Web page, most often one equipped with links to quotes, news and other information.

The following services—both Web-based and disk-based—are the top mutual fund screening services as selected by the editors of Computerized Investing. For an expanded discussion, see the on-line version of this article at www.computerizedinvesting.com.

Disk-Based Services

Although CD-ROM-based screening programs are more expensive, the depth of information and flexibility of the program can outweigh the costs for serious investors. The programs have more sophisticated screening capabilities and reporting techniques because of large storage capacities.

We describe one program here; for more software choices, see the on-line version of this article at www.computerizedinvesting.com.

Mutual Fund Expert

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Steele Systems offer three levels of mutual fund screening: Personal, Professional and Pro-Plus. All three programs have over 23,900 funds (including over 800 ETFs) in the database for screening. All data comes from Morningstar and is updated either monthly or quarterly. Data can be downloaded via the Web site a few days after the close of the month or quarter. You receive a password by E-mail in order to unlock the data and install it to your computer.

The Personal version includes 95 data points for screening including total returns for the last 12 months; annualized returns for the last one, three, five and 10 years; and individual-year returns for the last 10 years. Risk criteria include three-year alpha, beta, r-squared, standard deviation and average maturity for bond funds.

The Professional version has 229 criteria points for screening and fund research. In addition to the features of the Personal version, this version reports monthly returns for the last 120 months; Sharpe and Treynor ratios; price-earnings ratio; price-to-book ratio; median market capitalization; average bond quality ratings, average duration, and average coupon rates for bond funds; and a list of the fund’s top holdings.

The Pro Plus edition has 714 data points for screening and research and adds calendar-year and monthly returns from 1962 to the present, 15- and 20-year annual returns and longer-term risk statistics.

Using the program is relatively straightforward, and the program offers plenty of help materials. Creating a screen is simple: The program takes you step-by-step through each criterion addition. You can compare data to a custom value or to another fund or index value. One feature that is lacking is the ability to see how many funds meet each individual criterion.

You can create portfolios of funds and run screens against the list.

Exporting to a .csv or .txt file is an easy one-step process, but exporting to an Excel file can be confusing. You must copy and paste the database to Excel and take the time to format the data into readable tables.

Charts and graphs add to the program’s database. Total return charts help investors see patterns over various time periods and also compare performance to related indexes, funds (or ETFs), and category averages. You can save any screen or portfolio for later use and print any of the data pages and charts.

Overall, Steele’s Mutual Fund system provides a large database of funds with varying amounts of data on each fund that should satisfy any investor’s needs. The timely on-line downloads also add to the program’s effectiveness.

Web-Based Services

The ever-changing Internet means that sites offering mutual fund screening and data are rapidly evolving and growing. Each of the sites included here offers some level of free mutual fund screening service and data. Most sites require that you register with the site in order to use their services.

We describe three Web-based services here; for more choices, see the on-line version of this article at www.computerizedinvesting.com.

Morningstar.com—Premium Fund Screener

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Morningstar offers a database of over 24,000 mutual funds and over 300 data points for research and screening on each fund. A premium subscription to the site gets you access to the Premium Fund Screener. The screener has over 300 data fields that include one-, three-, five-, 10-. 15-, and 20-year annualized returns; Morningstar risk and ratings; standard deviation, beta, alpha, and Sharpe ratio risk measures; average maturity for bond funds; fees and expenses; and portfolio composition.

You can build a custom screen easily. Data is broken down by category and each data point includes a link to its definition. You can compare the figures to another fund, a category average or to a customized value. A unique tool is a quartile rank for the data points, which allows you to pick a more meaningful value for comparison. Adding screen criteria opens a pop-up box or another window in your Web browser, depending on your settings.

After you enter each data point, you can see how many companies meet each criterion. This makes it easy to tighten or loosen criteria if needed. The funds meeting the criteria are displayed on a different Web page and are ordered alphabetically. You can rank the list by any of the data columns on the table. You can also customize the columns in the display table. To quickly add any of the funds to your portfolio, simply check the box next to the fund name and choose Add to Portfolio.

Another interesting tool is the Fund Score, which allows you to compare multiple funds based on various criteria. You can rate the importance of each criterion on a scale from zero to 10. A total overall score is generated to makes comparison easy.

Data on individual funds includes tax-adjusted returns, investor returns that take periodic investing into account, additional performance data points, and charts.

The site also has a free fund screener with only 18 criteria for screening. The screener is not customizable and you cannot save the screens for later use.

The site provides data on ETFs and a free basic ETF screener with seven criteria for screening.

The Premium Fund screener from Morningstar offers a variety of data points for screening and research. The screener is easy to use and, for investors looking for a more in-depth screening tool, the cost is reasonable.

MSN Money—Deluxe Screener

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MSN Money offers a free Deluxe Screener for mutual funds that is compatible with Internet Explorer and Netscape browsers. However, you must first download an ActiveX plug-in in order to access all of the site’s tools.

The Deluxe Screener has over 75 criteria for screening including one-, three-, five- and 10-year returns; risk statistics including alpha, beta, Sharpe ratio and average credit quality of a bond fund; portfolio composition; and Morningstar ratings. Data can be compared to a user-defined value, another fund or index value or any other criteria in the screening database.

A useful feature is a sidebar that shows the definition of each screen criterion. Unfortunately, you cannot see how many funds pass each individual criterion, and the screen results show only the top 200 funds.

You can rank the passing funds by any of the criteria points and create custom views as well. Screens can also be saved for later use and passing fund lists can be exported to Excel or printed.

Individual fund data is in-depth and includes over 200 data fields. The Deluxe Screener offers price-earnings ratio, price-to-book ratio, additional risk ratings and statistics, individual-year returns for the last 10 years, performance charts, and top fund holdings.

The site also includes an ETF section with a decent amount of data on each ETF. The site does not have an ETF screener, and you cannot use the fund screener to search for ETFs.

This free fund screener offers a decent amount of screen criteria and is easy to use. For Windows users and those wanting a free better-than-the-basics fund screener, MSN Money’s Deluxe Screener is a great option.

SmartMoney.com—Select Screener

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SmartMoney provides a great Java-based mutual fund screener for SmartMoney Select subscribers ($5.95 per month). Data comes from Lipper and includes Lipper risk and return ratings. The mutual fund screener has over 21,000 funds in its database and over 50 criteria for screening. Screen criteria include one-, three-, five- and 10-year returns; risk statistics like alpha, beta and standard deviation; portfolio composition information; and Lipper ratings. Unique screening criteria filter on the best and worst three-month returns over three-year and five-year periods.

After you have selected criteria for screening, you can compare the data points to a user-defined value, an index or other mutual fund, or any of the 50-plus criteria. A helpful feature offered is a box that includes a description of the screen criteria as well as average values for various mutual fund classes.

The screener does not show how many funds pass each individual criterion, but you can view all of the funds meeting the criterion. The list is generated below the screen creation box, making it easy to adjust the criterion based on the number of passing funds.

Passing funds are displayed in a table that is not customizable, but the results can be ranked by any column in the table.

You can export data by choosing “Make Report” after you have created and run a screen. You can also print and save the screens for later use.

Data on each fund includes about 200 data points, including Lipper ratings, individual-year returns for 10 years, fund holdings by sector and company, and risk statistics that are compared to indexes and category averages. A worthwhile feature of the site is that you are shown comparisons of most data points to an index and the category or fund class averages.

Although SmartMoney charges for fund screening, its mutual fund data is free as is its ETF data and screener.

The ETF screener is by far the best on the Web. With over 50 data points for screening and over 800 ETFs in the database, it offers the same flexibility and customization as the mutual fund screener.

SmartMoney’s Select Screener for mutual funds is reasonably priced for its offerings. The screener is easy to use and has some unique criteria for screening and research. For those interested in ETFs, the free ETF screener is the best on the Web.

Conclusion

Investing in mutual funds allows you to diversify your holdings with less effort than investing in individual stocks. But to hone in on the funds that meet your qualifications, you will most likely need to use a fund screener. The screening services included here are what we consider the best of the pack for mutual funds. They have unique tools and data points, offering a wide range of screening abilities and data points that are offered at varying costs.

The best program or Web-based tool for you will depend on your needs and the cost of the program.

If you are interested in a basic screening tool, MSN Money’s free Deluxe Screener may fit the bill. A slight upgrade comes with a slight cost increase for SmartMoney’s tool, and the best of the best is Morningstar’s Premium Fund Screener, which charges the highest fee of Web-based tools in this comparison.

If you are interested in more advanced and flexible screening and analysis, Steele Systems’ software programs provide a wealth of data on a large database of funds and a powerful screening tool.