Two investment advisers with websites that facilitate online community investing have disclosed plans to introduce mutual funds that will be run by individual investors, not veteran fund managers.
Both Marketocracy.com of Los Altos, Calif. and WeVest.com of Berkeley, Calif. have announced that they will allow amateur investors to oversee the management of mutual funds yet to be created and registered with the SEC.
Marketocracy.com does not plan to offer its first investor-managed mutual fund for another three years. But, the first fund of WeVest.com to be run by exceptional but amateur online investors will be introduced by the middle of next year, said Maggie Tsai, vice president of corporate development and co-founder of WeVest.com.
While other pioneering online mutual funds allow investors to make stock suggestions to fund managers, Marketocracy.com and WeVest.com would be the first to allow amateur investors to actually manage the assets of a mutual fund.
Marketocracy.com, which launched its online investing site in mid-July, plans to track managers and identify those with the best performance record, hoping to find individual investors who will be tracked to identify those star managers with the best three-year investment record.
Marketocracy.com currently allows investors to create up to ten fictitious mutual funds, each with $1 million in pretend seed money. Investors must execute simulated trades through the Marketocracy.com website.
The online virtual mutual fund managers are required to adhere to diversification rules and manage cash just the way a bona fide mutual fund manager would, said Kendrick Kam, CEO and founder of Marketocracy, the investment firm sponsoring the Marketocracy.com website.
Marketocracy.com now has 24,000 different virtual mutual funds currently trading and investing on its website, Kam said. Marketocracy.com will track the performance history of all online investors over a three-year period, then choose those with the best records to run real mutual funds which will be designed to take advantage of those managers' talents said Kam. The first investor-run mutual fund will probably be a multi-manager fund with as many as five managers, he said. Each will run a portion of the fund, he said.
"The problem is how do you identify the right portfolio managers that should be managing funds?" said Kam. "Writing the prospectus is the easy part. Finding the managers is the tough part. The people who should run the funds are the people who have the best track records."
A three-year performance period was chosen because it is long enough to see how well managers perform in various market conditions, Kam said. It will also allow the executives at Marketocracy.com enough time to distinguish between luck and skill, said Kam.
Once the first investor-run mutual fund is operating, Kam says that the chosen managers may then be paired off to create other mutual funds. The funds will be made available to all investors, not just online investors and those who will buy shares at the Marketocracy.com website Kam said.
"We won't force all investors to come to our website," he said. He expects to distribute the funds through the major mutual fund supermarkets.
Kam, who currently manages the $39 million Marketocracy Medical Specialists Fund, in the early 1990s, co-founded Novoste Puerto Rico, a medical devices company in Aguadilla, Puerto Rico.
In 1994, he co-founded Interactive Research Advisors of San Jose, Calif., the adviser to the Firsthand Funds group. Kam was president of the firm and the co-manager of both the firm's flagship Firsthand Technology Value Fund and the Firsthand Medical Specialists Fund.
Kam took the Medical Specialists Fund with him when he left Interactive Research and set up Ingenuity Capital Management of Los Altos, another advisory firm, last year. Shareholders approved the change in management earlier this year. In June the fund changed its name to the Marketocracy Medical Specialists Fund.
Two other Marketocracy funds, the Marketocracy ChangeWave Fund and the Marketocracy Technology Plus Fund, were registered with the SEC in October but have not yet been introduced.
WeVest.com, whose site went online in early 2000, allows both individuals and investment teams to try online portfolio investing. The site runs a monthly competition for investors.
WeVest.com runs all of the investment ideas through what it calls its "Collaborative Investing Engine," for which there is a patent pending. The engine is essentially algorithms, which rank the investment ideas and the stock pickers.
WeVest.com plans to put that investment intelligence to work by introducing its proprietary Collaborative Funds sometime in the first half of next year, said Tsai. The fund will be a new form of open-end mutual fund between self-directed and passive investing, she said. The fund has not yet been registered.
WeVest.com also hopes to license its collaborative investing technology, allowing other fund groups to build their own similar community investing funds that would be distributed online.
"It is not a cannibalization for them but an inevitable trend," said Tsai.