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Portfolio > Mutual Funds

Shining a Light on Software

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Over the past 20+ years of advising clients, I have used a number of different software packages to select and monitor clients’ investments. With the number of investment options increasing and margins decreasing, the importance of doing this efficiently is critical. Add to this advisor equation the overabundance of investing information, and we could spend all day doing nothing but research, which is a luxury we cannot afford. If you’re the type of advisor who feels a responsibility to conduct some level of research, I hope the information that follows will prove valuable to both newly independent advisors who have to pick a research tool as well as more experienced pros looking to do a better job managing your clients’ assets. The four products are Morningstar’s Principia and Advisor Workstation, Steele Systems Mutual Fund Expert, fi360, and Klein’s Fund Selection Tool. “Comparing the Contenders,” a comprehensive table comparing options and pricing is included in the sidebar section.

Morningstar Principia and Advisor Workstation

Morningstar’s Principia is available in several flavors. They are Mutual Funds (includes ETF’s), Stocks, and Variable Annuities, all of which are all available in basic or advanced versions, Closed End Funds, and Separate Accounts. This tool is well suited for selecting and monitoring a wide range of investments. Within the software, there is a Research mode and a Portfolio mode.

In the Research mode, you can easily create screens to select any of the aforementioned types of investments. For example, if you were looking for a large growth fund, you might establish a screen such as an expense ratio less than 1.0%, category ranking in the top 25% for the trailing one- and three-year periods, bear market rank in the top 40%, and manager tenure greater than three years. The results would be displayed and you can save your search criteria for future use. Each fund has a detail page for printing and there are eight different graphs available.

Also, let’s say you wanted to know how a particular bond fund performed during a period of rising interest rates. With the advanced analytics, you would simply select the fund, open the advanced analytics section, choose monthly periods (other time frames are available), and view the returns. There you could easily see which months were negative.

In the Portfolio mode, you can create an unlimited number of portfolios, with an unlimited number of holdings, for an unlimited number of clients. Let’s say your client had 10 different accounts. You could aggregate any number of them into one new portfolio. You might do this by qualified and non-qualified or by spouse. You can then print a Portfolio Report which provides valuable analysis on each portfolio.

Pricing for Principia depends on the number of modules chosen and the frequency of your updates. The basic mutual funds option, updated quarterly, would cost you $550 per year. The entire Principia suite is available for about $3,300 annually. Pricing may vary according to the B/D or custodian with which you affiliate.

Morningstar offers training via the Web for a modest fee and classroom sessions for a higher fee. However, the help menu within the software is extremely useful and provides a basic explanation plus a more detailed explanation. I have also called tech support several times and they do a great job.

Exporting data from Morningstar Principia is limited. One limitation is that the correlation matrix will only allow for eight different holdings and the risk-reward graph does not identify the individual holdings. Also, the trailing period data is limited.

Advisor Workstation is Morningstar’s Web-based tool and is available in two versions. The Enterprise Edition is offered through custodial and brokerage firms to their affiliated advisors, and Office Edition is the off-the-shelf version. Enterprise Edition can be configured by broker/dealer firms to provide investment planning, research, and portfolio construction and analysis and is integrated with each B/Ds Web platforms. I subscribed to the Enterprise Edition and it included stocks, mutual funds, ETFs, variable annuities, and closed-end funds. Also included in my subscription was Morningstar’s hypothetical module where you could see how a portfolio performed during a specific user-defined time period.

The cost for Workstation Enterprise will vary depending on the features your particular broker/dealer or custodian has selected, and may range from $700 to $3,000 per year. The Office Edition costs $5,000 per year. It can be paid monthly, but will cost slightly more.

Steele Systems Mutual Fund Expert

Mutual Fund Expert from Steele Systems is available in three versions–Personal, Professional, or Pro Plus–and is a useful tool for selecting and monitoring mutual funds and variable annuities.

You can establish filters to search for mutual funds, create portfolio reports, and can create color graphs for use with clients. The data for Mutual Fund Expert comes from Morningstar, though Steele Systems adds its own twists, including its own star rating system, a rating for return, risk, and a risk-adjusted rating. One of its strengths is that Mutual Fund Expert contains data dating back to 1962. This system gives you the ability to export unlimited data into Microsoft Excel if you’d like to do additional analysis. There are other unique features, including the ability to customize a great deal of the output. Within the software are sections called Detail Reports, Graphs, and Table Reports. Let’s say you chose a fund (perhaps from your screen) and selected a “detail report” page for that fund. By double clicking on the page you can add additional funds (or indexes. In the “Graphs” section, your ability to customize the report is increased. You might want to change the type of graph (performance, growth, composition, etc.), change the selected time period, add other funds and indexes, change the display to a line, bar, or 3D graph, or change the color scheme. There’s a great deal of flexibility here. Creating portfolios is easy and the output pages can also be customized. Overall, it is a very good presentation tool.

The help menu is very good but I’ve had difficulty with the telephone help line. Pricing for Mutual Fund Expert begins at $22 per month for Personal, increasing to $62 a month for the Pro-Plus offering. Variable Annuity pricing ranges from $42 to $62 per month for quarterly and monthly updates, respectively.

One of Mutual Fund Expert’s drawbacks is that it is limited to mutual funds and variable annuities, though the company says it is close to adding an individual stocks module. Also, when you call the help line you’re referred to the Web site and if that doesn’t do it, you’re asked to send a detailed e-mail to support. I prefer speaking with a person who can answer my question immediately.


The fi360 tools are a unique Web-based solution designed with a particular niche in mind, that of the investment fiduciary. A fiduciary is the highest standard in the industry and is the standard that Registered Investment Advisors, among others, are held to. This application applies not only to fiduciaries themselves, but to anyone who offers products subject to fiduciary rules, such as most retirement plans that fall under ERISA. This product is available in your choice of Silver, Gold, or Platinum levels. The Gold Toolkit is divided into three sections, My Client Manager, the Analyzer, and a group of additional tools. My Client Manager is where you establish clients, create an asset allocation, formalize an investment policy statement (IPS), select portfolio holdings, and produce personalized, client-specific monitoring reports. The “Analyzer” application allows you to search for mutual funds, ETFs, and separate accounts. You can also find a fund’s fi360 Fiduciary Score, create custom due diligence screens, and produce investment reports. The third section of additional tools is a resource area with reports, sample models, and slide presentations.

Included in the My Client Manager is an asset allocation optimizer, which, according to the company, is in the process of being revamped through a partnership with New Frontier Advisors. The new optimizer will use a technique called Resampled Efficiency, which is patented by New Frontier. These enhancements will be complete in January 2008, fi360 says.

Once a portfolio is optimized (on an asset class level), you can produce a two-page PDF report containing a pie chart, five-year average return and five-year range of returns for the chosen portfolio, and a worst-case one-year return, plus additional information.

From there you can not only prepare an IPS but do so for several different types of clients including individuals, retirement plans (committee directed or self-directed), personal trusts, and foundations and endowments. When the IPS is complete, you can move on to select the specific holdings you will use in the portfolio and then produce a number of multi-page reports in PDF format. The reports review the client from many different aspects: investment level to aggregate portfolio level.

The Analyzer application is a good tool to conduct due diligence on specific investments and produce PDF reports. There, you can see a fund’s quartile rank in a number of categories.

As for training and support, there is a comprehensive tutorial available on the fi360 Web site as well as a number of FAQ’s. If you get stuck, pick up the phone and call. Even though fi360 is a relatively small organization, I have usually been able to reach someone.

The cost for this offering starts at $675 for the Silver Tools increasing to $1,375 for the newly launched Platinum Tools.

Just like most Web-based applications, it’s a little more difficult to maneuver than a desktop tool, but with a little patience you’ll be fine. If you’re an RIA or act in a fiduciary capacity, you should check this one out. Even though the price was set for an increase in January 2008, I still like it. I just liked it more before the increase.

Klein Fund Selection Tool

This is a Web-based product designed for evaluating mutual funds and ETFs. What’s unique about Klein is that it allows you to create weighted factor models rather than traditional screens. Unlike a typical screening process, Klein doesn’t just deliver a list of funds that passes all tests, it allows you to score funds and then rank them. Let’s say you were searching for a large value mutual fund and you had specific criteria that you considered to be important, such as low expense ratios and longer terms of manager tenure. You might also be looking for funds with returns that have been in the top of their peer group for a given period. With a screening process, there may be a fund which is outstanding in two out of three categories, but just barely misses the cut on the third. Because it missed one screen it would be eliminated and not show up in your final list. With the Klein tool, the fund would score poorly on the one factor while well on the others. Since the tool doesn’t eliminate funds, it would still appear in the final rankings, and might still score quite well over all. In a second major difference from traditional screening, Klein’s tool also allows you to weight each of your criteria according to the importance you place upon it.

For instance, you may think the most important criteria is a low expense ratio and therefore assign it the greatest weight. You might also put lesser weight on the fund’s return versus its peers, and the lowest weight on manager tenure. The results will be adjusted accordingly. Finally, Klein provides three ways to assign weights to the various factors. First, you can apply an equal weighting to each criterion. Secondly, if you’ve already got specific weights in mind for each factor, you can simply enter them and the software will calculate your results. Finally, if you intuitively believe some factors are more important than others, but don’t feel comfortable quantifying them, the tool will do it for you by soliciting your preferences on a simple series of importance and trade-off questions, and then applying a process known as adaptive conjoint analysis to derive the actual weights. The flexibility and rigor this tool provides when searching for mutual funds and ETFs is unique.

I found the Klein help desk staffers to be very willing to take the time and answer my questions. As for pricing, individual licenses are $1,495 and corporate licenses are $8,000 per year. The corporate license allows three people to access the tool simultaneously; the individual license will allow only one user at a time. As for Klein’s limitations, you can only select mutual funds and ETF’s. You cannot create a portfolio with this tool, just select funds.

The premise here is that you should be able to select better funds than you could by screening, which is itself dependent on the premise that you are able to select the most important criteria. But which is more important, manager tenure or expense ratio? Is performance within its category more important than a fund’s Sharpe ratio? If you can answer these types of questions, you may be able to predict alpha. I do like the ranking process, though.

Summing Up

The correct solution for you will depend on many factors including the type of clients you work with, whether you work with a large company or are an independent, whether you are an RIA or work with a independent broker/dealer, and the type(s) of investments you use. In summary, it is possible that one solution alone will not provide you with everything you need and that the answer is some combination of the above. Klein may provide a better way to select funds but does not prepare portfolio reports (that’s not their niche). fi360 provides a great tool for the fiduciary, Steele Systems provides great flexibility to customize your output, and Morningstar has the broadest menu of modules. Most, if not all, of the companies have a free trial period, so do your homework before purchasing.


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