To Sell or Not to Sell? Web Site Seeks to Offer Answers

A couple of years ago, Roy Weitz was trying to decide whether to sell his stake in Neuberger & Berman Guardian. The mutual fund’s performance was slipping a bit, and he wanted to know why.

But when Weitz started looking around for information on selling mutual funds, he didn’t find much. So he launched a World Wide Web site to help people in a similar predicament.

Weitz’s Internet site (https://www.FundAlarm.com) is one of the few places to get objective information on whether to sell particular mutual funds, and why. Weitz is not affiliated with any mutual fund companies and earns no money from marketing their products. The FundAlarm site is free to access and carries no advertising.

Even people who don’t go online with their investing might find some guidance in his sell criteria, which focus on past performance, manager tenure and a fund’s asset growth. The April issue of Dow Jones Investment Advisor, a trade magazine, called FundAlarm “one of the best examples of a focused investment site” on the Web.

Weitz, who lives in Tarzana, believes mutual funds are great investments, but he also considers them over-hyped.

“It occurred to me that it’s very hard to find information on selling them,” he says.

Of course, with any Internet service, you have to ask about the qualifications of the people who run the site. Weitz, 45, does know a thing or two about investing.

He’s a certified financial planner and a certified public accountant who spent five years running the Southern California financial-planning practice of Price Waterhouse. He left the accounting firm in 1994 to serve as chief financial officer for a private foundation in West Los Angeles. He has kept this “day job” while working on the Web site evenings and weekends.

FundAlarm tracks more than 600 stock and balanced funds--primarily the largest ones--using performance figures for the last one, three and five years. Each fund’s results are compared against three benchmarks representing large stocks, small stocks and foreign companies. Weitz thinks three-year performance is the most telling, but he urges investors to check a fund’s numbers over shorter and longer periods as well. A fund that lags its primary benchmark is flagged as a “three-alarm” sell candidate.

The Web site also lists manager tenure for each portfolio, so investors can determine whether the track record was compiled by the person currently in charge. In addition, Weitz provides information on a fund’s total assets and change in assets, reasoning that top-notch funds that grow too quickly might have trouble maintaining their superlative records, whereas a shrinking asset base could signal other problems.

Every fund profiled in FundAlarm fits onto a single computer screen, which makes the site quick and easy to use.

Unfortunately, this box-score approach also has its shortcomings.

“Providing information on when to sell a fund is an intriguing idea, but [FundAlarm] is tremendously oversimplified,” says Brian Mattes, a spokesman for the Vanguard Group in Valley Forge, Pa., who looked at the site.

For example, the site doesn’t provide information on shareholder-borne costs. Rising expenses over time could herald problems such as the addition of a 12b-1 fee or a shrinking asset base that is causing management to lose interest in a fund.

Nor are there any risk measures, such as standard deviation, beta or worst-case quarterly or yearly returns. Also, there’s no interpretation of a fund’s performance within the current market cycle. For example, are all foreign-value funds lagging, or just yours?

Even the benchmarks Weitz uses are less than optimal. Every portfolio is evaluated against the same three mutual funds--Vanguard Index Trust 500, Vanguard Index Small Cap and Schwab International Index. Yet many of the funds profiled on FundAlarm don’t stack up neatly against any of these benchmarks.

For example, Mattes complains that Vanguard Wellington rates as a sell candidate, but he points out that its 40% bond weighting puts it at a natural disadvantage against pure-stock index funds.

One noteworthy feature of FundAlarm is a lively “Highlights and Commentary” section, where Weitz discusses topics of interest to fund investors and lists fund manager comings and goings.

“I discovered that there’s no central source that lists manager changes,” Weitz says.

But as for the box-score profiles, investors should regard these as merely the first step in deciding whether to dump a fund, not the final word. There are simply too many other factors to consider.

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Russ Wiles is a mutual funds columnist for The Times. He can be reached at russ.wiles@pni.com