Fund-Track: Mutual Fund Timing, Compare mutual funds, Mutual fund ratings

Fund-Track Basics (Getting Started)
Suggested Trading Strategy (Recommended trading rules)
Trading Tips (Important reminders on how to use Fund-Track more successfully)
How Not To Use (Be careful not to make these common mistakes)
Other Items To Look At in the Fund-Track Ranks
Disclaimer

The Fidelity Select System has Its own separate How To Use section; Link here: Fidelity Select Fund Track.

Fund-Track Basics (Getting Started)

There are currently 2 different Fund-Track systems to utilize. The regular Fund-Track system and the Fidelity Select Fund-Track system. The Fidelity Select system has its own "How To Use" section within the Fidelity Select page. Utilizing Fund-Track should take just a few minutes a week. The mutual fund rank is updated twice a week and the funds at the top are those that Fund-Track identifies as possessing the strongest potential for gains in the future. The basic concept is to "stay with the leaders". Here are a few basic steps to getting started.

1. Paper Trade Fund-Track for a while. You can skip this step, but it may help you to determine:

If it is right for you, and if you feel comfortable using it.
If you are disciplined enough to buy and sell mutual funds in a strictly "mechanical" manner without letting any, emotions outside information and hunches influence you
To test its performance as a mutual fun timing system, and its ability to compare mutual funds and find those performing well.

An alternative to paper trading is to look at the past ranks for the year utilizing the Past Ranks page and paper trade from the beginning of the year to the present to verify performance. You can do this with the model portfolios following their mechanical trades which get triggered on the recommended Buy, Sell and Hold recommendations that show each week, and are explained later on this page.

2. If you haven't already, open a brokerage account where you can trade mutual funds. There are many online discount brokerages that facilitate trading mutual funds. The Brokers page is an aid to help you decide for yourself which broker to use. For those planning to utilize the Fidelity Select Fund-Track, it is recommended that you utilize Fidelity as your brokerage or open an additional account with them to utilize this system. See the Fidelity Select page for details on trading with Fidelity.

3. Decide upon a Fund-Track investment approach. Some use Fund-Track for their entire mutual fund portfolios, but a common approach to use it for just a portion of your investment portfolio. How many funds you want to use is dependent upon your tolerance for risk as well as how much you plan to invest. A one fund approach as seen in the single fund model portfolio is a more focused strategy. For a more diversified strategy the a multi-fund approach can be implemented holding 3 or more funds at a time. The returns of the single fund and multi fund model portfolios can be seen on the Performance page. The single fund has performed better over the last 4 years but being more focused inherently entails more risk.

To start small, try implementing a single fund strategy, and then when satisfied either up the amount of assets in your one fund (as long as it shows a "Buy") or spread your assets to a couple of more funds utilizing the more diversified multi fund strategy. It is suggested that with under $10,000 to invest use no more then 2 funds at a time. The reasoning for this is two fold. 1. As the amount of assets you have in each fund gets smaller, the more transactions costs will eat into performance when you trade. Using Fund-Track you will be trading each fund about 4 times a year. 2. A number of funds within Fund-Track have investment minimums of $2,500 or greater, including some with $5,000 and $10,000 minimums. Those greater then $10,000 are not included in Fund-Track.

You can also choose to follow a Model Portfolio shadowing it's trades with your own. This can keep you mechanical and disciplined in your trading. The model portfolios trade strictly on the mechanical Buy and Sell recommendations. Staying mechanical and disciplined in your upgrading of funds is the primary key to success in utilizing Fund-Track. See the Trading Tips and How Not To Use sections below for more on this important concept.

4. Purchase your funds. If you plan to follow a model portfolio: For the Single Fund Model portfolio buy into it if the one fund it is holding is showing a "Buy" signal. If it is showing a "Hold" wait until it either turns to a "Buy" or turns to a "Sell" and buy into the fund it buys (the highest rated fund exhibiting a "Buy") . For the Multi-fund portfolio buy into any of the 3 funds while it still shows a “Buy”. For example if one of the 3 funds is showing a “Buy” while the other 2 are showing a “Hold” wait for those 2 to either turn to “Buy” to get into, or to “Sell” to buy into the funds they are trading into. Be sure to check your fund for possible short term redemption fees as described below in "When Selecting a Fund".

If you are moving money from a cash position to invest, there are certain days during every month that seem to be historically better to "buy in" then others, and to cash out then others These are based on recurring historical ups and downs in the market. For more detail see the "Seasonality System Dates" on the Weekly Update page

5. Review Fund-Track regularly. After your funds are in place, review Fund-Track regularly following the suggested routine below: The Fund-Track Weekly Update page is updated once a week on Friday evenings. The actual Fund-Track rank (as seen on the Top Funds page) is updated twice a week on Tuesday and Friday evenings. Within Fund-Track..

Check the What's New page for any information, updates and/or model portfolio trades
Link to The Weekly Update page, and within that page:
Link to the Top Funds for the Week page for a review of the top 20% of Fund-Track funds, or
Link to the Full Rank for the Week to see the full ranking of all funds. (PDF file)
Review the Commentary for the Week for a weekly market review and links to relevant articles
Link to the Model Portfolio Performances to review the model portfolios for the week
Check the Fund-Track MSN Community Site for any helpful news, comments or questions.

Trades within the Model portfolios will be posted when they are made on the Top Funds Page and the What's New page on the Tuesday and Friday evening updates. They will show in the Model Portfolios at the end of every week.

Suggested Trading Strategy

General Steps
Buy, Sell, and Hold Recommendation Logic
When Selecting a Fund
Asset Allocation

General Steps

Initially purchase the highest ranked fund/s exhibiting a "Buy" signal.
Review the Fund-Track ranks weekly or twice a week (on Tuesdays and Fridays). The entire Weekly Update page (including the rank) is updated and posted at the close of every week on Friday evenings sometime after the market closes and no later then Saturday. The Top Funds page (showing the top 20% of Fund-Track funds page is also updated every Tuesday evening for those that want to take a peek mid week at how their funds are doing. The ranks take daily data into account. If the Fund-Track rank is not reviewed regularly (every week or so) the advantage that it was built to give gets lost.
Make any appropriate upgrades to your fund portfolio by staying with the leaders in the rank. Follow the Buy, Sell, or Hold recommendations made or follow your own upgrading strategy. The basics of following these rule-based recommendations are: Hold a fund until it shows a “Sell” signal then trade into the highest ranked fund exhibiting a “Buy” that you don't already have. If you find the rare occasion where there are no funds showing a “Buy” simply go to cash by trading into your brokerage's money market fund. With most brokerages the "Sell" will be executed on the close of the day you enter the trade (i.e. the market day after the signal was initiated) and the "Buy" on the close of the day following the "Sell". For example: If Fund-Track signals a "Sell" on Friday's rank. You have usually have until close to 4pm on Monday to enter your Sell order and corresponding Buy. Your fund will be sold at Monday's close and the fund you are trading into will be purchased at Tuesday's closing price. For simplicity, the Model portfolios use the closing prices on Friday for the Sell and the Buy. This is discussed on the Performance page.

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Buy, Sell and Hold Recommendation Logic

Repeating from above, the general strategy of using Fund-Track is to simply stay with the top ranked fund/s. Those are the funds with the largest calculated price strength and thus exhibiting the strongest trend. The "Buy", "Sell", or "Hold" recommendations seen for each fund on the rank is based on the following:

Sell Signals - A "Sell" will appear for a fund when one of the following conditions exist:

It drops out of the top 20% (40th place) in the rank OR

Its Average price Strength (AS) falls below 0% OR

Its Short Term price Strength (STS) falls below -5.0%.

The rank of a fund indicates how strong it is trending relative to the others. Staying within the top 20% ensures you are with one of the top performers. When a fund's AS drops below 0% its price is slipping below its weighted exponential average. i.e. it is dropping below and out of its current trend. It does not necessarily mean that its price is dropping absolutely. AS < 0% serves as a "Sell" trigger because in a broad market decline sometimes all funds regardless of their economic sector will be dragged down. In these conditions even if a fund is high in the rank (relative to others) it could be still be losing value (falling in price). STS < -5.0% serves as a "Sell" trigger that protects against sharply dropping price strength. STS less then -5.0% is not often seen, but when it is should be a signal to exit a fund. These two price strength sell triggers add downside protection, preserving profits and/or limiting losses.

Therefore, these 3 conditions (Rank, AS above 0% and STS above -5.0%) work together to keep one in funds that are both performing better then others and moving in the right price direction. These rules are based around the concept of "letting profits run while cutting losses short". If a broad market decline is taking place sucking down most all funds with it, one of the two price strength conditions will trigger a "Sell" to either the few Bear Market or Bond funds that take advantage of those types of conditions.

Buy Signals - A "Buy" will appear for a fund when all of the following conditions exists:

It is in the top 20% (40 funds) in the rank AND

Its Average price strength (AS) is greater then 0% AND

Its Short term price strength (STS) is greater then 2%.

STS > 2% eliminates any highly ranked candidates that are not increasing in price, which is why you will sometimes see a lot of funds at the top of the ranks that do not show "Buys"   Never buy into negative price strength. (a fund that is declining in price)

Hold Signals - The "Hold" signal is simply the signal for any funds not meeting either the Buy or Sell signals. i.e. A "Buy" signal on a top 20% fund will move to a "Hold" when Its STS drops below 2% but remains above -5.0% and Its AS remains above 0%.

Why These Rules?

Extensive testing has been performed on a wide range of variable combinations and permutations. This testing was empirical in nature, in that rules were derived and then back tested over 3 years to test their validity. Trading rules were not invented to capture the best performing past funds. These recommended rules simply give some guidance on how to use Fund-Track based on my experience and work with this system.

Anybody is of course free to ignore the Buy, Sell, and Hold recommendations and utilize whatever rules approach they would like. For example simply trading on a fund based on its rank can be a valid approach. By setting a higher rank threshold for trading (i.e. Selling when Fund drops out of the 15% instead of the top 20%) a more aggressive trading approach can be pursued.   But, with this trading approach will come shorter hold times and thus more trades and higher transaction costs. In contrast, setting a lower rank threshold results in a more conservative approach and lower transactions costs..   In my testing I found that the top 20% threshold to consistently perform well and be a good tradeoff between staying with the top performers and not trading too frequently. To see the historical performance of the model portfolios using these trading signals see the Performance page

You can also make similar modifications for the AS and STS trading triggers as well for your own trading strategy. I found the recommended rules above to achieve the best performance, but this is open to debate as there is an endless amount of trading permutations to try.   More testing is encouraged for anyone desiring to attempt it. Just contact me about what ideas you may have and we can discuss what I have already tried and why. If the rules you utilize are consistent and outperform the Model portfolio’s performance, please share it with us so that we may back test and post for others to consider. The key in all this is to stick to some mechanical approach and not to stray from it.

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When Selecting a Fund

Before buying into a fund, it is recommended that you perform a quick overall review of it. Detailed information on each fund can be accessed by clicking on the Ticker for the fund on the Top Funds Page and the Fund List page. This takes you to Moringstar''s analysis for each fund, Look for:

Fund Closure: - Some of the funds that Fund-Track ranks are doing so well, that money is flowing into them quite rapidly. They thus sometimes close to new investors to prevent "asset bloat" as a strategy to sustain a successful performance. These closed funds are dropped out of Fund-Track at the end of the year, or until they drop out of the top 20%. It is of little use to track and rank them if new investors are not allowed into them. If you are in these funds before they close, resist the temptation to remain in them if and/or when they fall in the ranks. Stick with a mechanical plan of staying with the leaders in the ranks. Historical research has shown that a fund's performance usually suffers after it closes. There are plenty of other good funds to choose from in Fund-Track.
Short Term Redemption Fees: - Some fund families add back-end redemption fees for their funds (on the sell) if you haven't held the fund for a certain length of time (usually ranging from 60 - 180 days). These redemption fees tend to be somewhat small (usually from 0.5% to 2%). These are listed on the rank for each fund but do change often. Check for them, by looking at Morningstar's profile, by checking with your own brokerage or by calling the mutual fund company directly. Their phone number can be found on the Morningstar profile under the "Fees & Management". The model portfolio history has shown that most funds are held long enough to avoid these fees. And even if sometimes you get hit with it, sometimes a 1/2 to 1 point % fee is a small price to pay for a potentially large profitable gain.

Diversification & Asset Allocation

The nature of Fund-Track is to identify those mutual funds that are currently performing and trending well. As explained previously, depending upon the economic conditions present, funds of the same "fund type" (within the same industrial sectors/asset classes or regions around the world) tend to move up and down the ranks together. When looking at the ranks one might observe that the funds at the top exhibiting "Buys" are of similar type.   If you are utilizing multi-fund portfolio and desire to practice asset allocation it is suggested that when it comes time to "Buy" a fund you consider selecting a recommended fund that falls in a different fund type then those you are already holding.

The down side of this should also be looked at. Although this approach would obviously serve to mitigate risk should one sector or region take a sudden tumble, it might also compromise returns. This approach might also incur slightly more frequent trading as you are not selecting funds that are the ranked the highest and thus have less to fall before they trigger a "Sell".

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Trading Tips

These tips are keys to using Fund-Track successfully, and most apply to any investing approach. They have been applied through years of experience with this system with good results. Most of these tips complement what I believe to be the most valuable investing adage ever coined. Always "Cut your losses and let your profits run"

Use a mechanical approach for trading and be consistent! - Whether you adopt the Fund-Track Buy, Sell or Hold recommendations or create your own, stick to them and be mechanical in your trading. The Fund-Track model portfolios have performed pretty well following a strictly mechanical trading approach built around the concept of "cutting your losses and letting your profits run". If the fund your holding shows a "Sell", upgrade it immediately! Don't let your losses run by inactivity. This is probably the single biggest mistake that most investors make. A good way to force yourself to use a mechanical approach is to shadow your trades the model portfolios make, trading when they do. These model portfolios are unemotional and consistent unlike most of us. Most successful traders use a mechanical trading system. This is no coincidence. A good mechanical trading system automates the entire process of trading. If you know that your system makes money over the long run it is easier to trade according to it during periods of losses. Trading on personal judgment you may discover that you are bold when you should be cautious, and that you are fearful when you should be confident. The confidence, consistency, and discipline that a sound mechanical system affords is the primary key to the success of most profitable traders’.

Don't over analyze mutual fund fundamentals - This is said tongue-in-cheek, but what is meant is: Don't let fundamentals (i.e. a funds historical record, managers record, tax efficiency, turnovers, expense ratio, economic or political conditions, etc.) dissuade you from buying into a fund at the top of the ranks. All that stuff gets factored into its performance which is what Fund-Track looks at without any bias. Remember that in utilizing Fund-Track you are not practicing a buy-and-hold strategy. Don't let fundamentals interfere with your upgrading "mechanics". Over analysis can actually be counterproductive to utilizing Fund-Track. Analyzing fundamentals beside being time consuming will encourage 2nd guessing the Fund-Track ranks. Leave the fundamental analysis to the highly paid money managers and analysts, and instead let them work for you. How good they are is what determines a funds performance which is what Fund-Track is ranking. If you are still inclined to make up your own rules as you go along, simply gauge your performance with the mechanical performance of the Fund-Track model portfolio to see what approach works better.

React to the trading signals quickly. - This complements the need to be mechanical in #1 above. You should execute your trades as quickly as possible after a trade is triggered. Remember that for most mutual funds and brokerages you can only buy and sell on a fund's day-end closing price. (Fidelity Funds excepted) Therefore the sooner you execute your trades the more profitable you will be and if your following a Model portfolio the closer to its performance you will be.

Don't try to outguess the rank. - In reviewing the Fund-Track ranks, you might get tempted to trade into a fund not yet showing "Buy" or not at the top of a rank yet in lieu of one you "think" will soon be there. i.e. a fund that may show high Short Term Strength and/or exhibit a large jump in rank from the previous week (Chang in Rank). You might also be tempted to do the same on the down side when you see a fund dropping from the top swiftly Don't be tempted and fooled! A lot of experience has proved this not to work. Stick with the Buy and Sell signals, not before or after. Again, be mechanical.

Give it time. - Don’t expect this system to be very successful over just few weeks or even months. It takes time and discipline following the tips suggested above in order for it to work for you. If you have reviewed the Model portfolio for the last few years you are aware that there are periods and trades you will lose on. Be patient, and don't get frustrated and pull out. Something I see commonly are investors getting into Fund-Track after the model portfolios have shown some particularly good performance (a high) only to take some initial losses as the market transitions and the ranks change. They then get frustrated and pull out (at a low) and claim that Fund-Track does not work. I can't predict the future and assure that this system will work as well as it performed in the past. Just give it time, and sick to a plan.

Be prepared for losing trades. Expect them! - Know going into a trade that you could be getting out of it in a matter of weeks with some losses including possibly a redemption fee assessed. If you expect this going in, you will get out when you are supposed to and "cut your losses". Holding a fund as most do attempting to recoup your losses will only make matters worse. Know that going in! I have heard way too often "well I held that fund a little longer because I thought it was going to move back up and give me my money back"......That's a mistake! Another way to think about it is that the longer you hold onto a losing fund, the greater the missed opportunity of getting into a fund that is gaining. A mechanical approach as suggested above resolves this dilemma.

How Not To Use Fund-Track

This is somewhat redundant to the Trading Tips section above in that it gives examples of how the tips were not followed. These examples represent common but erroneous ways of using Fund-Track, and are sure recipes for losing money. Be aware of them.

Example 1: Waiting - Someone ready to use Fund-Track waits until they see a fund at the top for quite a while reaping consistent gains before finally executing a Buy only to see it drop in the ranks. More common is the opposite: holding a fund long after it showed a "Sell" hoping it will come back, losing money in it and missing the opportunity of being in a fund that is ranked much higher and performing better.

Example 2: Jumping the gun. Someone holding a fund decides to Sell before a Sell is actually triggered. The fund at first dropping, begins to move back towards the top. And the flip side, someone decides to buy a fund rising in the ranks but not yet showing a Buy hoping for earlier and larger gains. This may work sometimes but more often then not these funds fizzle out and start dropping again before ever getting near the top. Funds at the top usually have established a solid trend, those rising but not yet there have not.

Example 3: Irregular review - Related to example 1 above, someone selects a fund to buy and then does not come back to review Fund-Track for weeks at a time missing trades that have been triggered. By not regularly reviewing Fund-Track they were not able to capitalize on the advantages it was developed to give.

Example 4: - Jumping in and out of Fund-Track - Someone waits until the market has established some strong trends and then finally decides to jump in at a peak. Soon their fund starts dropping and then instead of trading up, they sell out entirely with losses, and then wait for the next hot fund to emerge and remain at the top for a while and make the same mistake all over again. Or they get frustrated and they sell out with losses and claim that Fund-Track does not work. As seen from the historical records of the model portfolios on the Performance page a lot of trades result in losses, as well as gains. They key is to stick to a plan and not give Fund-Track a try for just a few weeks or a month or two. Just look at model portfolios.

Example 4: - Jumping between Fund-Track systems - Someone looking at Fund-Track decides to invest in the Fidelity Select system because at the time that has the best YTD return. But, soon after they sell out and switch to the regular Fund-Rack because of gains being made there. They are constantly "chasing" returns instead of sticking to a system and a consistent approach.

All these examples boil down to a common denominator: A failure to decide upon an established approach to using Fund-Track and then following it consistently, methodically, and unemotionally. The returns of the model portfolios attest to a consistent and mechanical approach to trading.

Other Items to Look At In the Ranks

The following items are interesting to look at and follow but should not factor into decisions made based on the guidelines above.

% Change, Last 10 weeks and % Change, Year-to-date: - These columns are useful to see a funds the short and mid-term performance history. They can verify strong past performance for those who want to see it. But remember that past performance of a fund is not indicative to future success. It is the price strength averages that are important for they help estimate where a fund may be headed by measuring the strength of Its trend.
Change in Rank: - This is useful to see at what speed a fund is moving up or down in the ranks. (i.e. Funds showing large positive numbers have made big jumps up the ranks from the previous week). Look to see similar funds (from the same industry sector) making moves in unison. Particularly volatile funds like the ones a listed above (Gold) that were warned against trading usually show big swings up and down the ranks on a weekly basis.