Tulsa World: Startups let investors follow the leaders

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Startups let investors follow the leaders

By MARK JEWELL Associated Press
Published: 11/26/2009 2:33 AM
Last Modified: 11/26/2009 9:19 AM

BOSTON — If you're unhappy with your mutual fund, you can easily find another. After all, there are nearly 8,000 to choose from.

But is that thinking too narrow? That's the case a couple of startups are trying to make.

Companies like Covestor Investment Management and kaChing are betting they can tap into the disenchantment of a select group committed enough to do the investment homework most of us are unwilling to take on. Another requirement: Investors must be willing to try a radically different approach, one that's too new to have much of a track record.

Pat Rosenheim took the leap after mutual funds in his Fidelity Investments 401 (k) lost nearly half their value.

This year's rally gave the phone company technician enough breathing room to put another $30,000 into the stock market. But the 55-year-old Danvers, Mass. resident didn't entrust it to fund managers, or put it into his brokerage accounts.

On Covestor's Web site, Rosenheim spent months studying 20 professionals from outside the mutual fund world as well as amateur investors dubbed "model managers." They've demonstrated strong performance and consistent strategies over the couple of years Covestor has been tracking them, and agree to share information about their portfolios and credentials. Covestor screened the group from 20,000 users on its site.

From that 20, Rosenheim selected five whose approaches collectively seemed a good fit. When the model managers make trades in their own accounts, the same trades occur in Rosenheim's Covestor account. It's automatic, with Rosenheim's trades following within seconds.

For the right to invest alongside the five, Rosenheim pays fees competitive with those of most actively managed mutual funds: around 1 to 1.5 percent annually of the amount invested. Covestor splits fee money 50-50 with its model professional investors.

It's too early for Rosenheim to fully endorse a product he only started using only a couple of months ago. But he's enticed by the new avenues open to investors thanks to the Internet and its social networking phenomenon.

"The rules are changing," Rosenheim says.

For a price, you can swap portfolio and strategy information with almost anyone who's willing, no matter where they are. And if parties agree to terms, you can almost instantly mirror someone else's trades in your own portfolio. It can happen without the brokers and other middle men who can burden traditional fund investors with extra costs.

Covestor, with operations in London and New York, and Palo Alto, Calif.-based kaChing have been around a couple of years. They started as sites where investors could swap information, run 'virtual portfolios' that don't involve real money, or follow portfolios of top managers. It's only in the past couple of months that the sites have enabled investors to automatically mirror experts' trades via brokerage accounts. By MARK JEWELL Associated Press

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