Fund Giants To Offer DIY Portfolios

Philip Morton, Investors Offshore.com

15 February 2001

It was reported in the US media this week that Fidelity Investments and the Charles Schwab Corporation have announced plans to introduce DIY investment portfolios. They are currently conducting research into baskets of stocks to sell to investors who don't necessarily want to own traditional mutual funds.

Steve Wallman, creator of Foliofn which sells and trades baskets of stocks that investors can adjust (called folios), says: 'We're starting to see some of the major institutions starting to talk about innovations. It's remarkable what competition can do.'

Fidelity says it plans offer a wide range of baskets of stocks that it hopes will appeal to active traders who wish to convey money in and out of various sectors on the stock market. According to the New York Times, Executive vice president of the company, Tracey Esherick described Fidelity's new venture as a 'cross between exchange-traded mutual funds and customized folios.' Ms Esherick explained: 'Our product is really meant for active traders. We don't see it as competing with mutual funds. It's not professionally managed. It's not for the uninvolved.'

The benefit of share baskets is that they are time-efficient and save investors from having to build their own portfolios stock by stock; investors also control their own stocks as they have the ability to buy a particular basket of shares, and to make their own decisions when to sell the shares individually.

Fidelity have not yet disclosed the amount they will charge but Schwab say under their new venture, Portfolio Source, customers can purchase a basket of shares in 10 companies (already selected by Schwab) for an annual fee and minimum investment of $10,000.

Folios have come under scrutiny recently as they have been viewed by some as posing a threat to mutual funds. The Investment Company Institute called upon the Securities and Exchange Commission (SEC) last year to regulate folios as they would any other mutual funds. The SEC has taken no action to date but Cynthia M Fornelli has stated: 'We are working closely with the corporation finance division to determine whether these are securities and, if so, whether or not they should be regulated under the Investment Company Act. Generally, we applaud new products coming to market because they can increase competition, which can have the effect of lowering fees for investors. On the other hand, we have an obligation to analyze these products to make sure whether they're something we regulate.'

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