Monday, March 8, 2010

Covestor Model Manager

As of last week, Covestor Investment Management (CVIM or cv.im) began offering my portfolio as one of their Model Managers. This is a great opportunity to expand investors to the group that typically invests in mutual funds. It gives investors with only $5K the opportunity for individually managed accounts that in the past required at least $100k and in most cases $250K to open an account.

Unlike a mutual fund you get the opportunity to see current trades and portfolio holdings and you have visibility to your assets via 3rd party brokerage Interactive Brokers (IB). So anybody worrying about giving their money to an investment manager ala Madoff no longer has to fear never seeing that money again. The money remains in your name and you alone have discretion over transferring in and out. CVIM only obtains the ability to execute trades and collect fees.

How CVIM works is that I make trades in my account at IB and then the CVIM team replicates those trades within 2 minutes to investors that are subscribed to use my model. The fees are 1.5% of assets plus limited trading fees as low as $1 a trade. So in essence I'm selling CVIM my trading data for them to manage your investment account.

CVIM just began offering these services in October so its still relatively new, but it does open up money management to new levels of people. Whats interesting to me is that even a person with a $500K portfolio was somewhat limited to using one manager in the past. Now they can divide that money up into several money managers. For example give 10 managers $50K each to diversify away management risk. Also there tool makes it alot easier to move from one manager to the next since it was designed for multi managed accounts. Now more awkward scenarios of having to remove your money from a manager that has had your account for years.

The Portfolio being offered is a slightly more aggressive one then I'd manage for high net worth individuals. The main reason being, it's based on the track record of my personal account since Dec 2008 that I typically invest more aggressively and to keep true to the track record I've selected to move forward with the same investment thesis. The Portfolio will be labeled as Opportunistic (Aggressive Growth). It basically incorporates the Growth Portfolio plus the ability to use margin and shorts. Its also only targeted at 15 stocks considering the portfolio size can be as small as $5K. Fees on the trades of 30 stocks even at $1 a trade can really eat into small portfolio gains.

Please let me know if you have any thoughts on the use of CVIM or the Model in general.

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