Covestor Adds Five Professional Managers To Their Mix; SCHW, MORN, IBKR
| 31 March 2010

This morning Covestor
announced it had added, among others, Navellier and Associates to its management crew, bringing the total number of managers to 24 "professional" and 34 "non-professional" portfolios one can follow.
The five new firms added to the system currently manage about $4 billion in assets in their own firms. Navellier, alone, manages $2.7 billion. Louis Navellier is perhaps most well-known for his
Blue Chip Growth investment newsletter. In other words, they are established.
We have been closely following the efforts of Covestor and kaChing and you can see the first in our series on the two companies
here. This latest move demonstrates to us that, in particular, the line between investment newsletters, professional money managers and RIAs is continuing to blur. Auto-trading or "mirroring" services, we believe, brings more of these services to a broader group of investors that would otherwise not qualify for their attention.
We don't think, however, that these services are necessarily replacements actively managed mutual funds. Instead,
we have argued that a better alternative to most expensive actively managed funds are lower cost, indexed ETFs like those offered by Vanguard, Charles Schwab (SCHW) and others. A good survey of low-cost index funds can always be found on Morningstar (MORN).
What actively managed accounts purport to offer is more "alpha." Or, in other words, more return in exchange for more comprehensive and complex oversight. And this is probably true in some cases -- but the problem has been that relatively few investors could take advantage of such management expertise unless they had large amounts of capital to invest.
Now, in this case for example, investors can mirror the same trades Louis Navellier and Associates ostensibly provides to his wealth management clients with as little as $10,000. This can create new opportunity for investors, but it can also introduce new problems, as we
outlined here.
It's too early to tell whether these firms will be able to successfully broaden the reach of managed portfolios or whether this is even the best way to improve on some of the problems with financial services in general. But we like the experimentation and the effort to reach out to proven managers.
We
suspected that both kaChing and Covestor would start to work more closlely with established RIAs and downplay their relationship with "amateur" investor managers and this appears to be developing. Covestor appears uniquely positioned in the sense that it hasn't yet given up on amateur investors and as a result it may end up having the broadest appeal.