kaChing announced yesterday (rather quietly — strange) that they have indeed — after months of discussion — launched their investment management arm. What that means is that investors can open up an Interactive Brokers account to mirror the activities of portfolio managers on kaChing.
From board member Andy Radcliffe who posted on kaching’s blog yesterday:
We now enable you to “invest like a Genius” in your real brokerage account. On kaChing, a Genius is an investor who, not surprisingly, earned an Investing IQ greater than 140, built a track record over more than a year and agreed to live by the same personal trading restrictions as a classic mutual fund manager. Investing IQ is the first objective metric to evaluate whether an investor is lucky or good. It’s based on the same 3 factors used by the Ivy League Endowment managers, the world’s premier evaluators of investing talent, to rate their prospective investment managers:
- Risk adjusted returns – based on an investor’s information ratio
- Sticks to Strategy – based on an analysis of how an investor made returns
- Quality of rationale – based on a kaChing behavioral algorithm that measures community response to an investor’s research
This means that kaching will compete head on with Covestor Investment Management, a similar service launched by competitor Covestor in August 2009. kaChing has dubbed certain members “Geniuses”and opened them up to mirroring their portfolios in client accounts. It appears average fee structure is 1.25%. It’s unclear to me whether that includes transaction fees. I assume it doesn’t include them and therefore clients would need to pay IB on a per trade basis as well.
This radical transparency is ultimately a great thing for the fund management industry. I think having two platforms tackle this issue and coming at it from different perspectives is great. If Covestor is the suit, kaChing is the surly teenage technology whiz. Both approaches could find a home: kaChing with younger investors looking for the transparency and usability they’re familiar with in other industries and Covestor with more mature investors looking for an alternative to the mutual fund industry.
With all these platforms, a lot of thought has gone into the matchmaking process between investor and fund manager. While the lines may be blurred between the two in these environments, investors are given lots of information to assess performance and suitability. Being able to email the fund manager is just a dream in the mutual fund industry. Here, everything’s flat, including accessibility.
One caveat: it appears that minimum account size for mirroring is $3,000. With portfolio turnover greater than 100% in some of the kaching portfolios, clients need to make sure that trading costs don’t eat up all the profits. While mutual fund fees are higher, they assume much of the trading costs. If these costs are passed through to kaching clients — especially to small clients — the real fees would be astronomical.