Portfolio Management Software Programs By John Bajkowski

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1 COMPARISON Portfolio Management Software Programs By John Bajkowski No matter what techniques you use to select your investments, you must have a system in place to track your holdings. This process of portfolio management should provide a feedback system for tracking the performance of a security, its interaction with other securities in your portfolio, the allocation of assets within your portfolio, and the overall performance of your portfolio. The system also functions as an important accounting tool that tracks the income and purchases and sales of your portfolio holdings and helps calculate the tax liability of your portfolio actions. This product comparison examines portfolio management software systems designed to help you accomplish these tasks. July/August 2005 The Features Portfolio management systems can be broadly categorized as three types: software-based, Web HTML-based, and Web applet-based. Software-Based: Most sophisticated system. A program is installed to your hard drive, where all analysis takes place. Security price updates are usually made via the Internet. Users must pay for software and possibly for on-going support and updates. Web HTML-Based: Least sophisticated; most common type of Web-based service. System is run entirely within your Web browser and reports are limited to what is displayed within your browser. These systems are mostly free of charge and widely available on the Internet. Web Applet-Based: Users download a small program know as an applet from a Web site. This applet is installed on your hard drive and analysis and report generation is performed locally on your computer using data from an Internet feed. Applet-based systems are more likely to require a paid subscription that also provides access to stock and mutual fund data and screening. This comparison examines softwarebased portfolio management systems geared toward the typical individual investor. All of the software programs have Windows-based versions, while Intuit and Portfolio Systems, Inc. offer both Macintosh and Windows versions of their portfolio software. We examine Web-based approaches in a separate product comparison (see the July/August 2004 issue of Computerized Investing). Overall, we still feel that neither type of Web-based portfolio manager can yet replace the best software-based systems. Most Web-based services have limited capabilities for reporting on realized gains and losses and investment income; return calculations are generally less powerful as well. The Web-based tools offer speedy data and news retrieval and are best considered as a companion or compliment to your software program. They are very helpful in keeping you abreast of what is happening with your portfolio and notifying you of any events that might affect it. Your Shopping List The comparison grid on pages 12 to 15 details the features and functionality of each program. This article touches on the primary factors to consider when selecting a portfolio management tool and includes general descriptions of each of the programs. When shopping for a portfolio management program, it is best to develop a shopping list or checklist of features to consider. These features include: costs, securities/assets handled, transactions handled, reporting strength and flexibility, data updates, and ease of use. Costs When the issue of price comes into question, one needs to look beyond the retail price tag. The time spent learning how to use a program, configuring it to your data source, and entering in your pertinent trading histories and individual security information should be considered as part of your overall cost. In the long run, these three issues alone far outweigh the importance of the initial price of a program. Therefore, take your time in selecting a portfolio management application. Make sure you are making the correct choice for your needs. If you simply go out and buy the program with the most number of checkmarks in our grid, you may find it still sitting on a shelf collecting dust two years from now because it was too difficult to use and really did not meet your needs in the first place. Consider these cost issues now before investing your money and, more importantly, possibly wasting your time. When analyzing your situation, consider not only your current needs, but any possible future needs as well. If a demo of the program you are interested in is available, be sure to get it and test drive the program. Often the cost of the demo can be applied to the purchase price. Most of the program vendors in this comparison offer free demos downloadable at their Web sites; this is noted in the comparison grid. Securities/Assets Handled When looking at the scope of securities accommodated by any prospective program, consider not only the types of securities or assets that you currently hold, but also those securities you might want to purchase in the future. All programs cover the basic security classes stocks, bonds, mutual funds, and cash. Some programs will specialize in one area, such as options or mutual funds. While the program in question may cover one area well, it may not be flexible enough to track other types of securities should the scope of your investment holdings expand. 9

2 If your portfolio includes unusual securities or assets, such as derivatives, pay close attention to whether or not a program handles them. Also, other sections within the comparison grid relate to security and asset coverage: Transaction types, security lot assignments, reports, and even data services can affect how you track, organize, and analyze your portfolio. Any solid portfolio management program should also allow you to measure the diversification of your holdings. These programs can sort your portfolio into various categories in order to measure diversification. Some programs even measure the diversification within a particular asset class. For example, you may want to examine the industry breakdown of your stock portfolio or the state-bystate makeup of a municipal bond portfolio. Transactions Handled The transactions supported by the program are closely related to the types of securities that the program is designed to handle. Make sure that any potential program includes all the relevant transactions you might require. All the programs compared here handle standard transactions such as buy/sell and cash dividends. However, the ability to handle short sales and return of capital are key areas where the programs vary in their coverage. Related to the issue of transactions handled is the ability to specify security lot assignments for any given transaction. Security lot assignments are detailed in the comparison grid immediately below the transactions section. This is an important feature, especially to those interested in tax liability issues and tracking performance. (A lot is the total number of units involved in a given trade.) If you reinvest dividends from your mutual funds and stocks, you will find yourself tracking numerous lots over a long period of time. Any solid portfolio management package will automatically match buy and sell lots for different accounting strategies for the purpose of reducing one s tax exposure. These strategies include: first-in-first-out (FIFO), average cost, and specific lot. Finding an application that handles all three lot assignment methods is key when deciding on a program. Reports Reports allow you to analyze your portfolio and investments. The 10 applications vary widely in the types of reports they provide as well as in the strength and flexibility they offer. Vendors that offer different levels of their application often use report flexibility to differentiate their products Option Money and Portfolio Director by Portfolio Systems, Inc. in this comparison provide one example. Portfolio Director is geared toward professional managers and features a range of performance reports, while Option Money is offered without these important reports. Again, check to see if the programs that you are considering have the types of reports you want, but also look at other reports offered that you do not currently use in your analysis. They might enhance the overall evaluation of your portfolio. While you want to be sure that a program provides enough flexibility and functionality to complete your current task list, consider possible future needs with regard to securities and transactions handled along with reporting capabilities. Doing so now will save you time and effort down the road. The current holdings report lays out the composition of your portfolio. It is a basic report that indicates which securities are in the portfolio, their original cost, current value, gain or loss, and perhaps some security statistics such as dividend yield, priceearnings ratio, or beta. The holdings by lots report breaks down the composition report into finer increments, indicating each purchase at a specific date and price. This gives a clear, detailed history of your transactions and provides guidance for selecting which lots to sell to manage taxes. Tax schedules pertain to the Schedule B and Schedule D reports. Designed for computing interest and dividends received from a portfolio, Schedule B reports allow you to estimate tax debt (or credit) before year-end statements arrive. Tax Schedule D reports compute long- and short-term capital gains and group assets that will yield capital gains with tax liabilities. If you are going to rely on your portfolio management program to produce these schedules, make sure that adjustments can be made should tax laws change regarding factors such as short- or long-term holding periods in the future. Ideally, the program should also track foreign tax withheld on your securities to help ensure that proper credit is accounted for when filling out your taxes. Tax reports are provided for a given tax year, so programs generally include a dialog to select a given year to report upon. The projected cash flow report serves as a forecast of the expected portfolio cash income from dividends, interest, and bond maturities. This report is useful for estimating retirement income and allows you to structure asset holdings based on future needs. The issue of flexibility comes into play with the options of customized reports and batch processing capabilities. Customization choices range from content-related, such as time period, to cosmetics-related, like column and row headings or even font size. Batch, or group, processing simply involves completing multiple print jobs of different types of reports at one time. Batch reporting is typically found in products geared for institutional client reports. Portfolio alerts highlight when a security has crossed some predetermined price threshold. Such an alert may highlight a need for investigation that might otherwise go unnoticed. Performance Reports The section of the grid entitled Performance Reports depicts the various ways a program summarizes how well your investment holdings have fared. A basic part of the portfolio 10 CI

3 management process is to determine and analyze performance and, therefore, this section should be studied carefully. The number of performance reports offered helps some programs stand out from their competitors. The level of performance reports available is discussed in the brief program summaries that follow. A program that provides reports for securities, industries, and asset classes will not only give you the performance of each segment, but also will provide portfolio allocation analysis. Some programs allow for an examination among various asset classes such as domestic or foreign equities, bonds, or cash while others provide industry breakdowns. It is also important to find a program that has the ability to produce reports covering single and multiple portfolios. You will want a program that addresses the diversified aspects of all your holdings for all your portfolios, rather than one that can only concentrate on a single portfolio. All of the programs in this comparison provide a return for the current holding period, which examines gain or loss from the time the security is purchased. Most programs now also offer returns for designated periods, called between-period returns in the grid. Programs that feature the ability to designate time periods allow you to monitor security performance during a known market environment, as well as to examine all of your securities over the same time period. To designate time periods, a program must be able to store snapshots of your portfolio holdings and values at specific points in time and not just the current positions and prices. Some programs, such as Reeally!, can automatically create a price history from free Internet data sources and use the history to display portfolio returns over time. Portfolio return reports paint the clearest picture of how well your investment holdings have performed. However, it is important to understand which type of return is best for the individual investor. Both a value-weighted (also referred to as a dollar-weighted) July/August 2005 internal rate of return (IRR) and a time-weighted rate of return can be calculated by portfolio management software. But which one is right for your analysis? For the individual investor looking to gauge the true performance of a personal portfolio, the internal rate of return is desired because it represents the rate of return earned by your investments. The internal rate of return is both a value-weighted and time-weighted calculation because it considers the time when inflows and outflows are made to the portfolio, the amount of these flows, and the combined impact upon the overall rate of return. The time-weighted return is most often used to analyze the performance of investment decisions made by a portfolio or money manager. The time-weighted calculation directly ignores the impact of any cash added or removed from the portfolio because the manager most often does not have control over such events. However, not only does an individual have control over these inflows and outflows, but they impact the portfolio rate of return, the portfolio value and your wealth. Look for applications that offer both returns, but be sure to check for the internal rate of return. When a program provides taxadjusted returns, this simply means that it generates pretax and aftertax returns. These programs automatically calculate the tax liabilities of your transactions and report their impact on the rate of return of the securities and portfolios. Programs that follow AIMR-PPS standards adhere to the accounting and presentation standards established by the Investment Performance Standards Policy Group. These include: calculating a total rate of return, providing year-by-year rates of return, and allowing for consideration of portfolio management costs. Useful reports are a key consideration in selecting a program. If a demo of the program you are considering is not available, request that the company send you printouts of the available reports using a sample portfolio. Data Support It is common for portfolio management programs to offer a direct connection to an on-line service for price updates. The comparison grid indicates the information services supported by each program. The grid also shows the various formats supported for exporting and importing information. In most cases, this refers only to the transfer of security price information. Programs that support OFX stand a good chance of importing transaction data from your on-line broker. The Open Financial Exchange (OFX) specification allows for the electronic exchange of financial data between financial institutions, businesses and consumers via the Internet. OFX supports a wide range of financial activities such as banking, bill payments, and investment tracking including stock, bond, mutual fund, and 401(k) account details. Over 30 brokers currently support this OFX format, making it easier to pull in transaction data. Note that your broker may only keep a limited history of your data on the OFX server, requiring investors to be diligent about updating their accounts. Ease of Use The great intangible aspect involved in selecting a portfolio management program centers around how easy the program is to use. In general, there is a trade-off between a simple, easy-to-use interface and a strong set of portfolio management and analytical features. The more advanced programs seem to bring along an extensive interface with their highly evolved capabilities. When considering how easy the program is to learn, also consider how easy and quick it is going to be to perform your normal maintenance tasks, such as entry of purchases and sales and the reinvestment of dividends. When falling in love with a program s extensive coverage, remember that a longer learning curve will most likely be involved. No area of analysis warrants getting a demo more than portfolio manage- (continued on p. 16) 11

4 PRODUCT COMPARISON: PORTFOLIO MANAGEMENT SOFTWARE Program Name Company Telephone Web Site Address Price Demo Available (Cost) Platform (Mac, Windows) Maximum Portfolios/Securities per Portfolio Maximum Securities/Transactions per Security Securities/ Cash/Stocks/Mutual Funds Assets Bonds (Fixed/Variable/Zero/PIK) Handled Annuities Options/Futures/Warrants Real Estate/Partnerships User-Defined Security Identification (Name/Ticker/CUSIP) Classification Account Number/Management Firm Asset Class (Predefined/User-Defined) Industry (SIC Codes/User-Defined) Transactions Deposit/Withdrawal; Buy/Sell Handled Short/Cover Margin Receive/Deliver Security Return of Capital Dividends (Cash/Stock/Splits/Reinvest) Interest Income Bond (Discount/Premium/Amortization) Treatment of Fees/Commissions Security Lot Assignments (Avg.Cost/FIFO/Specific Lot) Automatic Security Lot Assignment Reports Current Holdings Holdings by Lots Tax Schedules (Interest/Dividend/Capital Gains) Projected Cash Flow Customized Reports Batch Reporting Alerts Performance Security/Industry/Asset Reports Portfolio (Single/Multiple) Holding Period/Between-Period Returns Value-Weighted IRR/Time-Weighted Returns Tax-Adjusted Returns Benchmark Comparison Follows AIMR-PPS Standards Data Support Data Services Supported Imports Brokerage Transactions Import Formats Supported Export Formats Supported Captool Individual Investor 1.74h Captools Co. Fund Manager Beiley Software Inc. 800/ / $249 $59 (Personal); $195 (Professional) (free) Windows unlimited/unlimited unlimited/unlimited Internet ASCII, quote-, comma-delimited ASCII, quote-, comma-delimited (free) Windows Personal: unlimited/500, Pro: unlimited/2,000 unlimited/unlimited (options) (name/ticker) (account number) (user-defined) (security/asset) (time-weighted) Internet OFX, QFX Quicken, OFC, OFX, QIF ASCII, comma-, quote-delimited, QIF 12 CI

5 Investor s Accountant Microsoft Money 2005 NAIC Portfolio Record Keeper Hamilton Software, Inc. Microsoft, Inc. NAIC/Quant IX Software 800/ / / info@hamiltonsoftware.com info@quantixsoftware.com $ $79.95 (Premium) $139 (free) (free) (free) Windows Windows Windows unlimited/unlimited unlimited/unlimited unlimited/unlimited unlimited/unlimited unlimited/unlimited unlimited/unlimited (fixed/zero) (options) (real estate) (real estate) (name/ticker) (account number) (user-defined) (security) (time-weighted) Internet Microsoft Internet OFX, QFX comma-delimited, tab-delimited Quicken, QFX, OFX, QIF ASCII, CSV, SSG, SIP ASCII, comma-, quote-delimited QIF, TXF, Excel ASCII, CSV, Excel, DIF, WK1, WRI July/August

6 PRODUCT COMPARISON: PORTFOLIO MANAGEMENT SOFTWARE Program Name Company Telephone Web Site Address Price Demo Available (Cost) Platform (Mac, Windows) Maximum Portfolios/Securities per Portfolio Maximum Securities/Transactions per Security Securities/ Cash/Stocks/Mutual Funds Assets Bonds (Fixed/Variable/Zero/PIK) Handled Annuities Options/Futures/Warrants Real Estate/Partnerships User-Defined Security Identification (Name/Ticker/CUSIP) Classification Account Number/Management Firm Asset Class (Predefined/User-Defined) Industry (SIC Codes/User-Defined) Transactions Deposit/Withdrawal; Buy/Sell Handled Short/Cover Margin Receive/Deliver Security Return of Capital Dividends (Cash/Stock/Splits/Reinvest) Interest Income Bond (Discount/Premium/Amortization) Treatment of Fees/Commissions Security Lot Assignments (Avg.Cost/FIFO/Specific Lot) Automatic Security Lot Assignment Reports Current Holdings Holdings by Lots Tax Schedules (Interest/Dividend/Capital Gains) Projected Cash Flow Customized Reports Batch Reporting Alerts Performance Security/Industry/Asset Reports Portfolio (Single/Multiple) Holding Period/Between-Period Returns Value-Weighted IRR/Time-Weighted Returns Tax-Adjusted Returns Benchmark Comparison Follows AIMR-PPS Standards Data Support Data Services Supported Imports Brokerage Transactions Import Formats Supported Export Formats Supported Option Money 7.0 Portfolio Analyzer Portfolio Systems, Inc. Hamilton Software, Inc. 888/ / $345 or $30/month $59.95 (free) (free) Mac, Windows Windows unlimited/unlimited unlimited/unlimited unlimited/unlimited unlimited/unlimited (real estate) (name/ticker) (account number) (user-defined) (security) (security) (holding period) (value-weighted) Internet Internet OFX tab-delimited comma-delimited, tab-delimited ASCII, Excel, HTML ASCII, comma-, quote-delimited 14 CI

7 Portfolio Director Quicken 2005 Reeally! Portfolio Systems, Inc. Intuit, Inc. Mantic Software Corp. 888/ / / $795 (individual investors) $79.95 (Premier); $69.95 (Mac) $150 (Standard); $525 (Pro) ($110/month) (free) Mac, Windows Mac, Windows Windows unlimited/unlimited 1,000+/1,500+ unlimited/unlimited unlimited/unlimited 1,500+/unlimited unlimited/unlimited (fixed/variable/zero) (Pro) (Pro) (options) (Pro) (Pro) (Pro) (name/ticker) (name/ticker) (name/ticker) (account number) (predefined) (user-defined) (FIFO/specific lot) (FIFO/specific lot) (security/asset) (single) (value-weighted) Internet Quicken Internet OFX OFX, QFX tab-delimited QIF, OFX ASCII ASCII, Excel, HTML QIF, ASCII, tab-delimited ASCII July/August

8 (continued from p. 11) ment. You can check out the program s interface and consider how easy it is to maneuver around in the program. Few demo versions come with written instructions, so browse the Web site for any help files and try ing questions to the vendor s technical support staff to test them for possible future reference. 16 The Programs Captool Individual Investor Captool Individual Investor is an excellent choice for the sophisticated investor looking to monitor and evaluate their portfolio holdings. The Captool program is offered in a number of versions ranging from the Individual Investor version priced at $249 to the Professional release that sells for $5,000. Captool Individual Investor comes with 12 months of Captool Individual Investor support and program updates. Support and updates after the first year are $60 annually. The program utilizes a series of spreadsheet-like windows for users to enter transactions, review securities and security holdings, and switch among various portfolios. Captool allows users to work with and view multiple portfolios at once. Users can maintain separate portfolios, and yet merge them to see how a combined portfolio is structured. Captool supports a wide range of security and transaction types that cover virtually any investment situation that an investor will encounter. Most programs rely on a series of questions to record transactions, but Captool relies on a transaction ledger that can be intimidating for first-time users. Experienced users will find the transaction ledger to be an efficient data-entry tool once the data-entry codes are mastered. Report capabilities are extensive and flexible. Captool ships with over 60 report templates that draw on different data fields and portfolio statistics. Captool reports also provide you with the option to incorporate graphics such as allocation pie charts and valuation growth charts. The program can examine the performance of individual securities, security groups, and the overall portfolio for user-designated time periods. The performance report can present the internal rate of return, time-weighted return, or simple profit on an annualized or total gain basis. Users have the option of looking at returns on both an aftertax and pretax basis and even specifying any fees or commissions paid over the reporting period. Tax-related calculations and reports are driven by tax tables that can be customized for specific portfolios and modified by users as tax laws change. Built-in scripts allow users to download current and historical quotes from popular investment Web sites such as Yahoo! Captool is powerful program; count on taking some time to learn how to use the program and to take advantage of its extensive set of features. Captool goes well beyond basic recordkeeping this is a powerful portfolio management and performance evaluation tool. Fund Manager Fund Manager is available in Personal ($59), Professional ($195), or Advisor ($395) versions. The Personal version is primarily for the individual investor and features complete portfolio management functionality. The Professional version is intended more for use by traders and enhances its portfolio management features with technical analysis tools including charting, trailing stop-loss alerts, moving average alerts and even warnings about wash sale possibilities. The Advisor version adds client management features including the ability to import data from advisory feeds supplied by brokerage firms and reports and charts to clients. Fund Manager allows users to track stocks, mutual funds, options, bonds, and cash accounts. All of the standard transactions for these security types are supported to keep track of your CI

9 purchases, redemptions, distributions, splits, recombinations, mergers, and spin-offs. Fund Manager supports both long and short positions. Transactions can be entered manually, imported from a wide variety of formats, or retrieved directly from your broker or mutual fund company through its OFX support. Users can track and record transactions for an unlimited number of investments and portfolios, but are limited to tracking 500 securities for a given portfolio in the Personal version (2,000 in the Professional version). Fund Manager has 13 reports and allows users to customize them by drawing on over 150 available fields. Capital gain reports provide all the information required for tax reporting; users can export capital gains to TurboTax or other popular tax preparation software. Warnings regarding wash sales are provided in the Professional and Advisor versions. The Professional and Advisor versions also offer price alerts that can be based upon a fixed price, trailing stop-loss, or moving average. When an alert is triggered users can be notified with a pop-up window, sound, Investor s Accountant message or page. Fund Manager offers AIMR-PPS compliant time-weighted performance reports that allow users to track the performance of individual securities and portfolios. Fund Manager Investor s Accountant Hamilton Software offers a number of portfolio management systems and even more basic programs to compute the rate of return of one s overall portfolio. Investor s Accountant represents the top-line of their portfolio management programs. Investor s Accountant tracks all records for any type of investment for an unlimited number of portfolios and produces a wide range of reports and charts. The program covers all the bases with regard to holdings reports and features performance reports for your securities and portfolio groups. Investor s Accountant can analyze your performance using both an internal rate of return and a time-weighted rate of return. Return reports can be presented before or after taxes. The program supports three methodologies for calculating the time-weighted rate of return. The reports can measure performance between any two points in time. Users can examine periodic performance (monthly, quarterly, annual) and composite performance of portfolio groups. Group composite performance can be determined as July/August

10 either asset weighted or asset plus cash flow weighted, and an aggregate method of calculating group composite performance allows inclusion of portfolios with differing time spans. Nice extras include automatic alert updates and a graphical analysis package. The alerts signal you when price, value or percent limits are hit, just before dividend dates, and when options are about to expire. Security performance and market trends can also be followed through the program s graphical analysis, which includes moving averages and price-volume. Investor s Accountant is a powerful program with a rich set of features and reports that place it among the upper class of applications in its field. Microsoft Money 2005 Money is one of two multi-dimensional programs included in this comparison that are designed to assist individual investors with the full range of money management activities (Quicken is the other). A detailed examination of the two programs was provided in the January/February 2005 issue of Computerized Investing. Microsoft Money 2005 NAIC Portfolio Record Keeper Money provides portfolio tracking measures and handles basic personal finance tasks as well. Money, like Quicken, comes in multiple versions Standard, Deluxe, and Premium. The Standard version is designed to assist in the overall managing of one s finances, the Deluxe package includes additional financial planning and tax preparation modules, while the Premium version is geared toward the investor with modules to analyze investments and provide tax analysis of stock transactions. Money tracks a standard set of securities such as cash, stocks, options, mutual funds, and bonds and the program has a special account type to track employee stock options. Overall, Money handles a fair amount of securities and offers extensive coverage of transactions. Most of the basic holdings reports are present and the performance report options are rather substantial: security, industry, and asset class performance reports and a time-weighted rate of return are available. Reports can be generated between periods and for multiple portfolios. Reports can also be customized by the user and run in batches. Money offers strong integration with financial data and portfolio tracking with CNBC on MSN Money (investor.msn.com). This top-rated comprehensive one-stop investment center features stock and fund re- 18 CI