by Joe Lan, CFA

Individual investors have numerous options when making investment choices. Choosing an appropriate asset allocation, and the holdings to maintain it, can be challenging, especially with the broad range of investment options open to individual investors. Luckily, there is an abundance of high-quality mutual funds that can keep investors who are managing a personal portfolio on track.

Mutual funds, as well as exchange-traded funds (ETFs). are popular due to several advantages they hold over buying and managing an individual stock portfolio. As we all know, diversification is key to lowering your risk while maintaining an expected level of return. Although most investors would not hold just a single fund, it is actually possible to diversify your portfolio with a single broad-based mutual fund. In addition, many mutual funds are actively managed, meaning that most of the hard work will be done for you. Investors still need to keep an eye on their asset allocation, especially if they are employing mutual funds for specific sectors or asset classes, but they will not need to spend time picking individual stocks.

With the wealth of mutual funds available, tools to help investors select between the funds are crucial. In our last Mutual Fund Screening Services article (Third Quarter 2009), we focused on the top disk-based and online software, providing a comprehensive review of a select few. This article stays with this strategy and reviews the top disk-based fund screener and the top two online fund screeners. Note that the MSN Money Deluxe Screener, which was reviewed in our previous article, is no longer offered.

An Overview of Screening

Mutual fund screening, like stock screening, offers a way to winnow a universe of mutual funds down to a more manageable number. The screens are based on criteria that investors find important, such as performance, expenses and risk level. The ability to find a manageable number of mutual funds that meet your criteria is invaluable, especially because the universe of mutual funds exceeds 22,000 in each of our featured screeners.

The screening process can also help investors round out their portfolios. An investor who lacks holdings in a certain asset class, sector, or even style is able to quickly find all mutual funds within the desired area, rendering the decision-making process much easier.

In the past, software-based mutual fund screeners dominated, mostly because of the immaturity of online screeners. The software programs are highly flexible and provide a wide range of statistics. The screening capabilities are usually more comprehensive than those offered by online screeners. The data provided by software-based mutual fund screeners is usually updated monthly or quarterly. The disadvantage, however, is that software-based screeners are more expensive than their online counterparts. The software fees can add up.

The rise of online mutual fund screeners has been significant in recent years. Their lower cost, along with the added flexibility and capabilities of online screeners, have made them a popular choice among individual investors. Since these screeners are Web-based, there is no need to download updates. The data provided is generally updated daily for dynamic figures, such as net asset value, and monthly for reported figures such as portfolio composition. Since online screening services are constantly improving their offerings, it is very likely that these screeners will eventually replace software-based mutual fund screening services altogether.

Characteristics of the Top Screeners

When selecting a screener, there are several important factors to consider. Of course, the price to use the screener will always be a central consideration, but equally essential is the flexibility and offerings that the screener provides. Investors should weigh the universe of funds, the data points available for screening, ease of use, the depth of fundamental data, and the frequency of updates provided by the program.

The mutual fund universe is significant. The ability to quickly display all funds in a certain sector with high long-term performance at a certain expense ratio is quite helpful.

It is important to select a screener that provides a wide variety of data points and a robust universe. The flexibility of the screener is equally vital in preparing a good screen.

Fund Universe and Screening Criteria

One of the most important characteristics of a top mutual fund screener is the fund universe. The number of funds in the database should be exhaustive. Each of the screeners that is reviewed in our article offers at least 22,000 funds.

The criteria available for screening should also be comprehensive. More importantly, criteria that you frequently use, and consider important, should be available. We take both of these factors into careful consideration when deciding on our top screeners.

Frequency of Updates

Disk-based screeners typically update on a monthly basis, and they are usually available for download online. Needless to say, the software-based programs are not updated unless a new download is provided and installed.

Most of the data in online programs are also updated monthly. Items such as price, price charts and net asset values may be updated more frequently. But for the most part, data elements are tied to a monthly marking-to-the-market that is performed by the mutual funds.

Depth of Fundamental Data

Another important feature is the amount of data the service provides on each fund. Disk-based programs are usually more expensive, but typically provide a wealth of data, including graphs and sector information.

Online programs have become increasingly expansive and offer most of the data the typical individual investor needs. For the most part, high-level online mutual fund screeners are housed within comprehensive all-in-one investing websites, so you will have quick access to the mutual fund data provided by the site itself. However, the top disk-based service still holds an edge in terms of the amount of mutual fund data presented.

The comparison grids on pages 24 and 25 display a side-by-side comparison of the top mutual fund screeners reviewed in this article.