Screening index mutual funds on-line with IndexUniverse.com
In this article, The Skilled Investor discusses how to screen index mutual funds on-line. This article focuses on using the free index mutual fund screener and database available at IndexUniverse.com.
We also discuss how to apply our seven scientifically based mutual fund screening criteria.
In a previous article, The Skilled Investor has discussed minimum requirements for using on-line screeners and fund databases to screen automatically the thousands of mutual funds and hundreds of exchange-traded funds (ETFs) that are available. (See: On-line screening of mutual funds and ETFs: Minimum Requirements). That article concluded that free fund screeners and databases offered by Morningstar.com and IndexUniverse.com are sufficient to allow you to screen mutual funds, index mutual funds, and ETFs and to use our scientific fund selection criteria. Because we found adequate free screeners to implement our criteria, paying a subscription to any website to obtain functionality that is more advanced is not necessary.
Note that the focus of this article is on the screening of INDEX MUTUAL FUNDS on IndexUniverse.com. A future article will discuss ETF screening on both Morningstar.com and IndexUniverse.com. You may also wish to refer to our previously published article: Screening mutual funds on-line with Morningstar.com
Note also that there is no business arrangement of any kind between The Skilled Investor and Morningstar.com or IndexUniverse.com. These websites simply meet the requirements laid out in our article on minimum screening requirements.
A related article also discussed our seven scientifically derived fund screening criteria: 1) minimum management expenses, 2) minimum turnover, 3) zero sales charges, loads and marketing fees, 4) avoidance of very large funds with higher trading costs, 5) avoidance of immature funds, 6) a minimally sufficient asset base over which to spread required fund expenses, and 7) the exclusion only of funds with very poor historical performance records. (See: Scientific mutual fund and ETF screening criteria: a summary)
You can find IndexUniverse.com’s home page at http://www.indexuniverse.com/index.php For the free screener, click on “+DATA” in the left hand column. When this article was published in early February of 2007, the direct URL address was http://www.indexuniverse.com/data/
Data in the IndexUniverse.com fund screening database seems to be updated quarterly, which is recent enough for fund screening purposes. The index fund data available at IndexUniverse.com comes, in part, from Morningstar, Inc. Free registration with the IndexUniverse.com site is optional. Doing so will give you access to other areas that might be of interest to you. Explore the site’s other functionality using the tabs to the left. Note that there are also paid parts of the site.
To apply The Skilled Investor’s seven scientific selection criteria to IndexUniverse’s mutual fund screener is a two-step process. First, two of the seven screening criteria can be applied directly and automatically to obtain an initial screened fund list that significantly reduces the total to consider. Then, guided by the remaining criteria and other practical selection parameters, you can further evaluate your initial screened fund list to pick particular funds for your investments.
The process described below by The Skilled Investor utilizes the functionality of the IndexUniverse.com screener, as precisely as needed, to develop a screened list of index mutual funds. The IndexUniverse screener offers a wealth of functionality, but you may wish to ignore most of it to derive your initial list. If these additional features are interesting, you could use then to change or refine your screening process.
STEP ONE: CONDUCTING THE AUTOMATED INITIAL SCREENING PROCESS
Once you have the IndexUniverse.com mutual fund screener open in your web browser, the following settings will implement the initial automated screening. Use the check boxes and pull-down menus to set values. Once you set all the data and screening variables the way that you want them to be, then click the “Search Now” button at the bottom of the screener list.
Once you have the web page with your initial screened list, notice three things. First, you can set the “Show results per page” at the top left to 100 results per page. This will minimize the need to switch pages. Second, notice the small “Go to page” pull-down menu at the bottom center. Click this menu to see if there are additional pages of screened results. Third, the screener offers a nice “Save Search” feature that you can access by clicking the button at the bottom of the page. Save Search provides an abbreviated URL for you to bookmark for later use. You may wish to rename the bookmark to a more useful description of your search, when you save your bookmark in your browser.
On the main “Search Parameters” page, make the following initial settings. Experiment with and alter them as you see fit.
1) SEARCH FOR: Check “funds” only, since we are screening only for index mutual funds in this article.
2) SORT BY: Select “Expense Ratio” from the pull-down menu, because this is a very useful sorting parameter.
3) SELECT ASSET CLASS(es): Either A) check only those asset categories of interest or B) choose “All,” if later you will manually eliminate fund classes from you screened list.
4) SELECT DATA POINTS: In the first column, check the following boxes: Ticker, Type, Category, and Min. Initial Purchase. In the second column, check the following boxes: Name, Asset Class, Expense Ratio, Index Tracked, and Min. IRA Purchase. You should also UNCHECK all the performance boxes that are prechecked by the screener. For the purposes of this initial screening, if you screen based on historical performance and you have permitted multiple types of indexes, then performance variables would tend to screen largely based on the choice of an index rather than the choice of a fund. While fund performance is a concern, the point about index funds is that they are supposed to track an index relatively closely. Some funds do better than other funds at this, and some funds do a better job of managing transactions caused by changes in the underlying index. However, these subjects are beyond the scope of this article.
5) SCREEN BY: Except for the following two selections, leave all the pull-down menu selectors as “Any.” In the first column, change Expense Ratio: to a “less than” value. If you choose “< .25″ you should still have plenty of choice in your screened list. In the second column, change Total Net Assets: to a “greater than” value. If you choose “>=$100Million,” then you screen out funds with total assets less than this level.
STEP TWO: EVALUATING THE SCREENED LIST TO CHOOSE INDIVIDUAL INDEX FUNDS FOR YOU INVESTMENTS
By choosing the screener settings described above, we can implement two of the seven scientific mutual fund screening characteristics automatically: “#1) minimum management expenses” and “#6) a minimally sufficient asset base over which to spread required fund expenses.” While this leaves five criteria for manual evaluation, the point of an automated screener is simply to get a much larger list down to more manageable size. In February of 2007, these two screening criteria with asset classes set to “All” cut down a list of 800 index mutual funds to just over 100. Selecting only domestic equity asset classes reduced the list to about 70 funds.
While this resulting number of funds may seem to be too large, there are easy ways to cut the list down quickly. Many index mutual funds are offered only for direct investment to institutional clients. Institutional funds are available to individual investors, only if individuals have access to such funds via a 401k or other plan, for example. Therefore, to eliminate these institutional funds, sort the screened list by clicking on the “Min. Initial Purchase” or “Min. IRA Purchase” column headings. Less than 25 of the 70 domestic equity funds mentioned above allow Initial Purchases of $10,000 or less. Also, note that when there is no entry for “Min. Initial Purchase,” the fund is probably an institutional fund. Very often, you can tell an institutional fund, because it will have “Inst” in its name.
Concerning the remaining scientific criteria that need to be screened manually, you can check “#2) minimum turnover” for your final list, but it should be relatively bizarre to see very high turnover in a passive index mutual fund that seeks to track an index. Concerning “#3) zero sales charges, loads and marketing fees,” simply buy directly from a fund and avoid paying the middleman. (Note that some index funds, such as the Dimensional fund family, cannot be purchased without using an advisor, which involves cost tradeoffs.)
Concerning, “#4) avoidance of very large funds with higher trading costs,” this selection criteria is less important for very large passively managed index funds than for very large actively managed funds. However, this is still an important issue and greater fund size can increase trading costs — particularly when an index fund has to react to changes in the composition of the underlying index. Concerning “#5) avoidance of immature funds,” the minimum asset size selector (#6) has probably knocked out many of the more immature funds. Nevertheless, you can check this for the few funds that make your final list. Finally, concerning “#7) the exclusion only of funds with very poor historical performance records,” some passive index funds do a better job of managing performance than others do. Again, this is primarily related to how the fund manages trading associated with changes to the underlying index.
Once you have your much smaller, screened list of funds, you can investigate the remaining funds in greater depth. If you have too few / too many funds, revise your criteria to be less/more restrictive.
When you find an index fund that is interesting, you can go to the website of the fund family. With your screened results from IndexUniverse.com, there are a couple of ways to find the fund family quickly, using your favorite search engine. For example, copy the Ticker Symbol into Google, and you are likely to find the fund as the top result. Alternately, click on the fund name in the screenedIndexUniverse.com list and some information about the fund will be displayed, but no URL. Nevertheless, just copy the telephone number into Google, and you will usually find the fund’s website near the top of the search results.
Once you are satisfied with one or several index mutual funds that meet your investment criteria, then you can invest directly with the fund(s) you like. The only cost to you of buying index mutual funds directly is your personal time and effort. However, the savings value can be huge over your lifetime, if you buy funds directly and cut out very costly sales agents in the middle.
Note: If you want to understand how much you personally could waste by paying excessive fund investment costs over your lifetime, see this article about VeriPlan’s automated lifecycle investment cost analyzer. Across your lifecycle, VeriPlan automatically projects the full value of the personal assets you could lose to the five main types of investment costs. VeriPlan develops projections that assume you will continue to invest at the same level of cost-efficiency or cost-inefficiency associated with your current financial asset portfolio. Alternatively, VeriPlan’s automated Cost-Effectiveness Tool lets you compare investment costs that you believe are more reasonable to pay versus the investment costs of your current portfolio.