In one of the previous posts, we introduced the Alpholio™ app for Android. This post is the seventh and final one in a series covering the app’s services in more detail.
The Mutual Fund service analyzes mutual fund performance using Alpholio™’s patented methodology. For a detailed explanation of the methodology, please visit our FAQ. To see how the methodology is applied in practice, please review our blog posts that analyze various mutual funds.
To analyze a mutual fund, Alpholio™ finds a reference portfolio of exchange-traded funds (ETFs) that most closely tracks the fund’s performance over time. In general, there are three ways such a reference portfolio can be constructed with respect to its ETF membership and weights (percentages of each ETF’s value relative to the overall portfolio value):
- Fixed membership and fixed weights (we call it a “regular fit”)
- Fixed membership and variable weights (“fine fit”)
- Variable membership and variable weights (“detailed fit”)
(The fourth alternative, variable membership and fixed weights, makes little sense.) More variability results in a more accurate fit, but it also causes more changes in the reference portfolio. A detailed fit, which selects ETFs from a large pool of candidates multiple times, is also much more computationally intensive than the other two.
To access the service, start the app, open the navigation drawer and tap the Mutual Fund item:
This will open a new screen, on which you can configure the analysis:
By default, the app analyzes FAIRX (The Fairholme Fund). To change the fund’s ticker, tap the corresponding field and use the pop-up keyboard to edit it. (If you need to find the ticker based on other information, use the Security Lookup service of the app.)
To modify either the From or To date, tap its corresponding button. This will pop up a standard date selection dialog. The From date must chronologically precede the To date.
To select a different fit type, tap the corresponding radio button. (The Detailed fit is disabled in the beta release of the app.)
After you specify all parameters, tap the Analyze Mutual Fund button. If any of your inputs are invalid, you will see a brief pop-up warning. If all settings are acceptable, they will be saved on the device for subsequent use. Please note that to use the service, your device must be connected to the Internet.
After the app obtains and processes the data, you should see the following screen:
This is a chart of the total returns of the analyzed fund and its reference ETF portfolios. To learn about the difference between the regular reference (Ref in the chart) and lag reference (Lag Ref) portfolios, please consult the FAQ.
To select a different analysis screen, tap the spinner on the action bar and then tap a corresponding item in the dropdown menu:
Here is the cumulative RealAlpha™ chart for FAIRX:
Below the chart, there is a Statistics section that you can collapse and expand by tapping on its header. The section contains annualized standard deviation for the fund and reference portfolio, as well as annualized discounted RealAlpha™ and RealBeta™ measures for the the regular and lag reference portfolios.
Here is the reference weights chart for FAIRX:
The Statistics section below the chart contains statics for each ETF in the reference portfolio. As you can see, the fund had a largest equivalent position in VFH (Vanguard Financials ETF). This was a reflection of large holdings in Fannie Mae and Freddie Mac, which recently caused the fund to lose 9.6% in a single day as a result of an unfavorable court ruling.
The Smooth Buy-Sell and EMA Buy-Sell charts provide hypothetical buy-sell signals derived from the cumulative RealAlpha™. The difference between the two stems from the smoothing method: The former uses forecasting (which has less latency but can cause more frequent buy-sell transitions), while the latter employs an exponential moving average (EMA) approach that has opposite characteristics. Here is a sample chart based on the first method: