When you look at the performance of
fund compared with that of three others offered by the online asset manager, you might think the animals are running the zoo. And, in a way, you'd be right.
, a fund where the portfolio managers buy only stocks pitched by some 2,500 amateur stock-pickers on the company's
Web site , is beating the shop's no-fee
index fund, as well as
Pure Play Internet
, funds run by pros with no audience participation.
Whether or not you shun Community Intelligence as a gimmick, you've got to admit it's shaking things up.
"All the critics like myself are shaking our heads," says Jim Folwell, a consultant with Boston fund researcher
. It's too early to say whether the fund's unique structure is more than a clever marketing trick, he says, but if performance holds up for several years, cynical industry veterans might have to give it more credit, "hats in hand."
StockJungle.com chief investment officer Michael Petrino and his colleague Gordon Gustafson co-manage the four funds, which are called "naked funds" because they post all their current holdings online. It's not really accurate to say that the amateurs are beating the pros, since Petrino and Gustafson don't blindly buy all the peanut gallery's picks. But it could be a bit humbling to see Market Leaders, a large-cap growth fund, and Pure Play Internet get dusted by Community Intelligence, which many pros claimed was an oxymoron when the fund launched. Is it an ego blow?
"Not at all. We see Community Intelligence as a great resource for ideas," says Mike Witz, 28, chief executive of the Culver City, Calif., firm.
Since Petrino follows a quantitative investment approach on the Community Intelligence fund, maybe the online "analysts" add a valuable, subjective element to the number-crunchers' approach. At large mutual fund shops, a deep bench of analysts peppers fund managers with ideas they wouldn't otherwise have considered. In this case, the Web site's amateur analysts are that bench.
Like Pure Play Internet, Community Intelligence is heavily weighted in technology and telecommunications, but the amateurs' picks in these hot sectors are beating the pros'. All of Community Intelligence's top-10 holdings are in the black, including big winners
RF Micro Devices
, up 271%, 139% and 136%, respectively, since the fund bought them.
Big name holdings like
Procter & Gamble
(down 30%) and
Johnson & Johnson
(down 33%) are weighing down Market Leaders.
It's not unheard of for fund managers to get stock ideas from their fund's investors. Back in October, Don Luskin, manager of the
OpenFund, found out about one of his fund's winners, New York venture capital firm
Harris & Harris Group
, from a visitor to his fund's Web site.
But StockJungle goes one step further. The fund shop compensates the best analysts for their picks. Its
Hot Hands program actually pays cash to the top amateur stock pickers to stay active on the site. Each day, five wannabes whose hypothetical portfolios have the top three-month performances get $50.
Since the program started in November, a woman with the online handle "Da Wolf" has won $750. In the past three months, seven of her picks have shot up more than 100%. Only one of her picks, SanDisk, is in the fund, however, proving the managers are selective.
Witz says the managers receive anywhere from 20 to 200 stock picks a day. With each pick, they can see the analyst's past record, which helps them sort the wheat from the chaff.
In a sense, the amateur folks are really getting to play portfolio manager, since they're suggesting investments primarily for other people's money. It appears that most of the analysts pitching stocks probably don't own shares of the fund. Community Intelligence has only about $1 million in assets. The portfolio's 36 positions are just 100 to 500 shares each.
Maybe the fund needs to win over more investors before it can silence its critics.
Then again, the site's analysts probably aren't the first money managers not to put their money where their mouths are.