THESE PROGRAMS CAN HELP YOU PICK THE BEST FUNDS TO SQUIRREL AWAY
(MONEY Magazine) – If you're a mutual fund novice, you might as well skip this column. The four programs I'll be reviewing here weren't designed for you. But if you're a serious investor who wants to screen mutual funds and if your're willing to put up with a few tedious procedures, read on.
What these programs do, with varying degrees of success, is let you search for funds that meet your personal investment criteria. They can also help you analyze your current portfolio in ways that would be far more time consuming without a computer.
The programs I tested include two from Morningstar, the Chicago-based firm that supplies mutual fund data to MONEY: the top-of-the-line Principia Plus and a cheaper alternative, Ascent. The third contender, Fund Analyzer, is put out by rival mutual fund data warehouse Value Line. The independent challenger is Mutual Fund Expert, from the financial-software firm Steele Systems. Principia Plus was the best of the four, though its $300-and-up price may represent money you'd rather invest in funds than in fund software.
Neither Principia Plus nor any of its competitors adequately address such basic concerns as what a reasonable expense ratio might be, the merits of no-load vs. load funds or allocating your money among different types of funds. Morningstar's Ascent, which is aimed at the nonexpert investor, comes the closest by providing more background than the others. An "Investing Basics" section of the program discusses such concepts as diversification, goals and time horizons. Users with a long investment horizon, for example, are told they might consider "somewhat riskier capital appreciation" funds. However, the program offers no guidance on what percentage of your portfolio such funds should represent. Ascent's glossary also offers more terms than the other packages do, but the definitions tend to be cursory.
--Choosing funds. All four packages use what's known among logicians as Boolean search criteria. First you choose the variables you want to consider (fund type, performance, risk, 10-year total return and the like). Next you narrow your search, using greater than, less than and equals symbols. For example, you might ask for all bond funds with expense ratios of less than 0.75%. You can also limit your search to a specific fund category.
One of the best ways to judge a fund's historic rate of return, of course, is to compare it with the relevant market index. Unfortunately, while these programs allow such comparisons, they don't always make it easy. Only with Mutual Fund Expert can you choose "outperformed a market index" as one of your screening criteria. With the other programs, you must look up the S&P 500's five-year average return, for example, then give the command: "5-year average return is greater than 15%" (15% being the S&P's average during the period I was using).
--Analyzing your portfolio. All these programs let you type in an entire portfolio of funds, then see how that portfolio as a whole has performed over time. Principia Plus produces all sorts of historic data and other information, such as each fund's current holdings. That analysis can help you determine what portion of your portfolio is invested in stocks, bonds, cash and foreign securities.
--Updating your data. Each of these programs is easily updated. The companies send out disks on a monthly or quarterly basis, depending on your subscription. You simply copy the new disks onto your computer's hard drive. Value Line also gives you the option of updating your database online.
Though it lacks that online capability, Morningstar's Principia Plus is still the best performer. The initial package costs $295. A year's worth of quarterly updates are $200 if you sign up within 30 days of buying your initial package; after that, they're $495. Monthly updates cost $500 within 30 days, then $795. (If you're a long-term investor, quarterly updates should be sufficient, no matter which software package you buy.) At $495, Principia Plus with quarterly updates makes sense only for professionals or investors with $50,000-plus portfolios who are willing to invest 1% of their assets in research.
Morningstar's lower-cost Ascent ($45 for starters plus another $50 for quarterly updates purchased within 30 days) is a poor alternative. Among other drawbacks, it lacks its stablemate's in-depth analysis of individual funds.
If you are mainly interested in no-load fund data, you will probably prefer the no-load version of Fund Analyzer. It costs $29 for the initial package, which also entitles you to two months' worth of updates. After that, quarterly updates are $95 a year, monthlies $149.
Choosing no-loads, of course, makes all the more sense once you've invested in software to help you do the choosing. Otherwise, you may be paying a broker or financial planner merely to consult the very same program that's loaded on your machine.
Author of Personal Finance for Dummies (IDG Books, $16.99), Eric Tyson is a financial counselor who teaches personal finance at the University of California-Berkeley.