Saturday, August 29, 2009

New Ways to Manage Your Portfolio

ASSISTANCE WITH PORTFOLIO BUILDING IS ALMOST AS OLD as the Internet itself. One of the first Websites I ever reviewed for investors, back in 1992, offered asset allocation as a core feature. If I remember correctly, that entailed a short risk assessment and an estimate of how much cash one had to invest. Seventeen years later, these systems are much closer to realizing the ideal of providing good investment advice, free from the pressure of an in-person sales pitch. Two more attempts are on their way: Cake Premium and Covestor Investor Management.

They’re entering a competitive field. Online brokers TD Ameritrade ( E*Trade ( have recently rolled out tools that recommend portfolios of exchange-traded funds and occasionally select mutual funds. And this summer we’ve seen two other entrants that work alongside your chosen online broker. MarketRiders (, for example, for a $100 annual fee offers a way to build and rebalance a portfolio of ETFs (Electronic Investor, July 13).

Cake Financial (, an aggregation and community Website that was launched in 2007 (Electronic Investor, Sept. 22, 2008), unveiled the new Cake Premium platform and service late last week. Explains CEO Steve Carpenter: “What we do, with very few pieces of information and by connecting retirement and brokerage accounts, is show you how you can do better, get back on track for retirement and pick a better allocation with better holdings, which we then monitor for you.”

One interesting piece of the analysis Cake Financial performs is comparing the cost of holding various mutual funds with alternatives that it suggests. The service tries to save you money on management fees when it makes a recommendation, which is a nice touch.

At a cost of $99 a year, Cake Premium reviews what you already own and what you’re trying to accomplish. To get started, you enter your age, when you want to retire and your current salary. You connect your online brokerage accounts by entering your user names and passwords, then you enter any other assets that aren’t in either your salary or connected to your accounts, such as home value, checking accounts, cash and other offline assets. Cake connects to about 60 online brokers, including all but one of the brokers we reviewed this year in our annual online ranking, thus avoiding any additional data entry on your part.

From there Cake Premium calculates three things: your asset allocation, your risk level, and what you’re spending annually on mutual-fund fees given your current holdings. The “Cake Take,” a proprietary, investor-generated stock-rating system, is displayed for each of your current holdings.

After running simulations, Cake Premium finds alternative funds and ETFs that are lower cost. Carpenter says, “We handle close to 100 investor-use cases, such as ‘properly allocated but holdings are wrong; holdings and risk levels wrong; within 10 years of retirement; more than 10 years to go,’ and many others.” Carpenter says the built-in models provide solutions for just about every possible scenario.

Cake Premium recommends—based on where you are and where you want to go—a variety of ETFs and low-cost mutual funds across six basic categories: large-cap growth, large-cap value, small- cap growth, small-cap value, international and fixed income. Carpenter notes, “We look for low-cost alternatives, index funds, ETFs and those 5%-10% of actively managed funds that do well over time and actually earn their fees.”

This system is not the way to go for sophisticated investors who trade derivatives, or for investors who are close to, or in, retirement and have the bulk of their investments in cash vehicles. It works well for mainstream investors with over $100,000 set aside for retirement, with the majority in stock funds. It’s designed for a once-a-year rebalancing of the portfolio and for long-term buy-and-hold investing. We also found during testing that it didn’t recognize closed-end funds, but that’s typical of this type of tool.

Once you’re done with all six pieces of the asset allocation pie, you get an action plan that tells you what you have to do in each of your brokerage accounts. You’re advised to print it out and place the appropriate trades; then Cake will monitor it for you on your own dashboard. The site lets you keep up to date on your overall portfolio performance, plus it keeps tabs on how much you’re saving in mutual-fund fees each month.

What I like about Cake Premium is that it ties in all of your existing online brokerage accounts, which means no additional data entry. Once you’ve executed the recommended trades that you want to place, your dashboard back at the Cake site automatically reflects those changes. It’s also interesting to see the savings in mutual fund fees, which will more than likely offset the $99 yearly fee.

COVESTOR (, which is a community Website for self-directed investors, has entered the fray with Covestor Investor Management (http://www.CV.IM). This system creates a money-management account that you use to subscribe to a particular investing model. You must have a brokerage account with either TD Ameritrade or Interactive Brokers ( to use this service.

The models are built by Covestor members, who share their trading strategies and techniques with one another. You go through a series of qualifying questions to determine your risk appetite, then you are shown models that would work for your style. You commit some of your portfolio to follow recommendations issued by one of the model builders. Each model author has an extensive profile, showing his or her trading frequency, number of holdings, preferred asset classes (stocks, ETFs, short sales, etc.), and returns against a variety of benchmarks.

Covestor Investor Management has just 10 model managers right now, but the firm expects more in the near future. You’ll pay each money manager 0.8% to 1.5% of the amount entrusted to his or her care in management fees, plus any commissions generated by your broker. It could get expensive following managers who recommend 30-plus trades a month, and a quick survey of the available models showed none beating the S&P 500.

Published in Barron’s, August 24, 2009. 

Posted by twcarey on 08/29 at 04:23 AM
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Saturday, August 15, 2009

Hardly a Lazy Summer for Brokers

ONLINE BROKERS ARE HAVING A PRODUCTIVE summer. TradeMonster (, optionsXpress ( and MB Trading ( are the latest to introduce new features.

TradeMonster has rolled out a variety of enhancements over the past couple of months; the two most intriguing are AdjustTrade and Portfolio Analysis. AdjustTrade, based on an existing tool called SpreadMaker, allows customers to adjust positions on current stock or options holdings with a couple of mouse clicks. Portfolio Analysis offers a variety of ways to benchmark your portfolio against indexes or apply different risk measures.

The simplest example of AdjustTrade involves a long stock position. If you click on “Close-Adjust,” the feature generates a sell order. You can choose more complex methods of adjusting your position by clicking on Income, Protection, Income and Protection, or Repair. Income sets up a covered call, which sells a call option against your long stock position. Protection finds an appropriate protective put, while Income and Protection generates an option spread order that sells a call and buys a put. Repair also generates a spread; if you already have an option position, it will suggest ways to roll it out to future months.

Once AdjustTrade has made a suggestion, you can edit the exact strikes or months in the drop-down boxes and create the order. AdjustTrade can walk you through ways to correct one of your open positions without simply closing it. For those new to options trading, AdjustTrade is a tool for learning about specific strategies. For instance, if you’re looking for some short-term protection, you can click on Protection, which will suggest an appropriate strategy.

If you’ve got an open options position in your portfolio, such as an Iron Condor, AdjustTrade lets you choose among ideas such as Increase Wingspan, Decrease Wingspan, Widen Up or Widen Down. AdjustTrade can save on commissions, because you can adjust an existing combo as a strategy rather than exiting and reopening the entire position.

For example, if you want to adjust an existing four-legged options combo so that you’ve got the strike prices 13, 14, 18, and 19—but currently hold 14, 15, 17 and 18—you can close out 15 and 17 and open 13 and 19 in one trade rather than closing all four legs and opening another four legs. By placing the order the right way, you can control your trading costs. Options traders who have market-neutral positions can use this tool when the underlying stock price is moving.

Several brokers, such as thinkorswim ( and optionsXpress, have tools that allow customers to roll a spread out to a future month, but this is taking it further. TradeMonster’s AdjustTrade tool shows you where you’re starting, where you’ll end up, and the strategy you’ll execute to get there.

“It’s not a befuddlement device for a customer,” quips Skip Shean, a vice president at tradeMonster.

TradeMonster also added a row to its Position View, which is the new Portfolio Analysis feature.

You can click on the plus-sign to open it, and beta-weight your portfolio against various indexes or any symbol you want to benchmark against. Portfolio Analysis shows greeks—a measure of risk—on the portfolio level, similar to analysis you can see for individual positions.

Your portfolio’s risk profile is displayed, showing current risk at expiration and at the current date. One recently launched tweak is the ability to stress test an entire portfolio. The “What-If” box lets you test the effect on your portfolio if the benchmark you’ve chosen changes in price or volatility, or if a certain amount of time goes by. I think these are interesting tools for the options trader, both to improve the quality of one’s trades and to learn how the various strategies will work.

THE XTEND FEATURE of optionsXpress was recently mentioned in this column. Newer still is its Xtend2 platform, which is in beta test, and available to all customers at This new platform is written in Adobe Air, which lets an online application run on a computer independent of a Web browser. You will have to download the latest version of Adobe Air before installing Xtend2, but that only takes a couple of minutes for a high-speed connection.

CEO David Fisher says, “We wanted to find something that has streaming functionality and one-click trading and lets our customers keep in touch with what is going on in the market, but is easy to use and doesn’t take much time to set up or learn.” Xtend2 bears some similarity to software-based trading applications, in that you can personalize the desktop to your liking, but it’s a much smaller download than usual.

The available modules are shown in icons at the bottom of the screen; when you hover your mouse over an icon, the name of the tool is displayed. Drag the appropriate icon and put it on the screen, and it will stick where you put it. The standard setup shows three columns that look a lot like the tradeMonster screen, but that can be easily changed.

Fisher says that customers who have switched to Xtend2 are going for the added functionality. “We think the learning curve is much shallower, and it’s much easier to use. The customers who are using it are trading much more actively than the average customer,” he states.

Xtend2 takes a screen that looks a lot like a foreign-exchange quote screen, Trade View, and populates it with your watch list or current positions. Each box displays the NBBO (national best bid and offer) and the current lot size available at that price. If you have an existing position, it is also displayed in Trade View. Watch lists set up on the Web application can be viewed in Xtend2, and vice versa.

MB TRADING JUST announced the completion of its acquisition of Wizetrade, which is a software program that displays market moves graphically, allowing traders to make quick decisions. Executive Vice President David Lipsett says, “It has a great suite of trading tools. The products and services range from proprietary pressure indicators and customizable scanners all the way to a full-blown, high-definition TV studio. The acquisition of Wizetrade has provided our traders an additional suite of tools.”

Published in Barron’s, August 10, 2009. 

Posted by twcarey on 08/15 at 04:21 AM
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Saturday, August 01, 2009

Putting SogoTrade Through Its Paces

THE BOOM IN OPTIONS TRADING HAS ENCOURAGED many online brokers to launch platforms to accommodate it. These days, it is a rare brokerage that doesn’t allow its customers to buy and sell options.

One of the former holdouts, SogoTrade (, just joined the party. We got a look at the product just before it launched publicly, then took another look after its debut on July 21.

The SogoTrade options platform brought to mind several others that I have seen recently, including Options-House ( and tradeMonster ( Dave Whitmore, president of SogoTrade, says the platform was developed in-house, based on industry best practices.

We tested it using the most recent version of Firefox for the PC; the broker recommends Firefox, Safari or Chrome. We found the platform works best in full-screen, since some tools don’t display when there is less real estate available.

Options quotes stream in real time, as do quotes for the underlying stock. When viewing quotes, there is a panel on the right side of the screen that offers one-click access to a Profit/Loss calculator and a probability calculator, which assess the likelihood that the underlying security will reach certain price objectives or risk points.

Hovering your mouse pointer over a sigma symbol on the far left side of a quote (for calls) or far right (for puts) displays the Greeks (risk measures that include implied volatility, delta, and gamma) in a small box that floats above the screen. The intrinsic and time value built into each strike price display when you hover your mouse pointer over the price.

There are several ways to place a trade. From the quote screen, you can click on a box near the strike price to build a spread. Click once to buy, and twice to sell; a third click clears that particular strike from your spread. Next to the buy/sell indicator is a small box where you enter the quantity. Once you have set those parameters, click on the “Trade Selected Options” box and an order ticket is displayed. You can also click on the “Orders” tab and enter the parameters manually. The Orders tab displays a history of orders placed, and whether they were filled, cancelled, or still pending. When you enter an order, the total cost is displayed before you execute it, which I like.

SogoTrade has updated its platform to provide real-time account balance information that is very helpful when one is placing a trade. Buying power and current holdings are all visible. The initial rollout of the options platform allows customers to trade long options and covered call positions only. Multi-leg and short positions will be released later this year.

Problems arise when going deeper in the tool kit, but considering this is a first iteration, we expect to see improvement. One issue is that clicking on an item in the watchlist has no effect on the option quote being displayed. I would like to see an easier way to switch the contract on display than typing in a new symbol.

The security tactics built into the SogoTrade Website are notable. It takes a few extra seconds to get logged in because you enter a PIN using your mouse to click on the numbers displayed on the screen. The position of the numbers shifts every time you log in, which is a clever way to prevent the bad guys from taking over your account. Kudos.

The firm has kept its commissions low—$3 plus 70 cents per contract with no minimum. Trading a single contract costs $3.70 while trading 10 costs $10. The commissions and the updated trading tools make SogoTrade a reasonable choice for the bargain-seeker. We look forward to seeing how the platform develops. Had SogoTrade had these tools in place during our March review of online brokers, it would have ranked much higher.

( recently rolled out its Xtend platform to all customers. This is a trading console that lets you place trades, get real-time quotes and track your account balance, positions and watch list from a single screen. To find Xtend, you click on Quotes from the top menu, then Streaming Quotes. Another click, on “Launch Streaming Quotes,” brings up the Xtend window, which is a Java-based application. There’s no software to download, but you might have to disable your pop-up blocker to get the window to display.

I find it peculiar that the firm is promoting the Xtend platform but doesn’t have a menu choice to make it easy to locate.

You can personalize the layout, moving the various components such as quotes, charts, and a Level II quote, which shows the publicly displayed order book for a stock. You can flip around between watch lists, current holdings, news, and options chains. Order entry is quickly accessible as well, and Xtend lets you trade stocks, options, spreads, and futures.

OptionsXpress also added an interesting feature to its basic Web platform, Ideas, which integrates several existing investing idea generators into a customer’s portfolio. The idea behind Ideas is to help investors find ways to modify their existing positions based on their current market perspective.

Chief Executive David Fisher says, “Providing the ability to quickly adjust to changing market conditions by using a variety of different investment products is what we do best at optionsXpress. The introduction of Ideas underscores that effort by delivering a diverse array of different stock, options and futures alternatives for customers to consider.”

Using Ideas requires no work on your part. Upon logging in and bringing up your holdings, those that have sparked an Ideas alert appear with a lightning-bolt icon when one of the four tools built into it has been triggered. The four tools are StrategyScan, which identifies strategies that work with the customer’s investing goals, experience and risk level; Chart Patterns, which seeks stocks that match an investor’s interests and spending limits; Trading Patterns, which show what like-minded investors are trading; and the Trade & Probability Calculator, which displays the projected risk, reward and financial feasibility of trading strategies.

For example, let’s say that your portfolio includes iShares MSCI Canada Index (ticker: EWC), an exchange-traded fund. The Ideas icon, when clicked on, opens up a display that shows three potential trading strategies for EWC, depending on whether you are bullish (purchase more stock), neutral (sell near-term calls), or bearish (buy puts). It’s a nice addition.

Published in Barron’s, July 27, 2009. 

Posted by twcarey on 08/01 at 02:04 AM
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