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New Fund Seeks to Democratize Mgmt.


For years, people have gathered in quiet, suburban living rooms to pick stocks and discuss matters impacting markets. They are known as investment clubs, and the communities of investors sometimes manage sound returns based on the notion that many heads are better than one.

Now, a Knoxville, Tenn., executive and his partner are capitalizing on that idea, seeking to unite via the Web a huge team of individual investors who, through a daily vote, will manage and choose investments for their own mutual fund.

The product, called IPS iFund, was launched this year for some 20 of its founders' colleagues. It currently holds approximately $85,000 in assets. But Greg D'Amico, president and co-founder of the Tennessee-based fund company, IPS Advisory, wants to grow those numbers to thousands of investors and millions of dollars.

He says his product is the first of its kind. It works like this: A shareholder in the fund logs onto its Web site, ipsifund.com, and, depending on his or her perception of the markets' volatility, enters a percentage that will serve as the majority needed to buy or sell a stock that day.

That recommendation is averaged according to all shareholders and a percentage of the votes needed to take action in managing the fund is set. Then, investors enter what D'Amico calls "the hive," an area of the site where users can nominate securities for purchase and sale, and investors can vote on the idea.

If the nominated stock gets enough votes, according to the percentage needed to take action that was averaged earlier in the day, the stock is purchased or sold. Holdings are transparent; investors have total control, D'Amico said.

Appealing to Monday

Morning Managers

The product is one of three mutual funds offered by IPS. The other two, multi-cap growth and aggressive-growth funds, are down some 50% because of their heavy exposure to technology, D'Amico said.

IPS, which funded the new product and its technology with its own money, recently redesigned the site and is now more-aggressively marketing the product through literature and press tours. D'Amico said he has already appeared on CNN.

He's betting the fund will garner interest because of its unique approach to "group intelligence," as he calls it. The more people vote, the smarter the fund is, he says.

He compares the product to an ecosystem, a biological force that corrects or alters itself, not through unilateral intervention of one person, but the collective ideas of thousands. "It's going to create a whole different world than we've seen so far," he said.

Idea Called a Gimmick

It's big talk, the kind the industry has seen before. Geoffrey Bobroff, a mutual fund consultant, isn't buying it.

"It's stupid," he says. "The concept of pooling your assets and seeking an investment advisor is a logical process. Having a product...that's done by popular vote is not just silly, it's stupid."

Bobroff sees the iFund as just another gimmick in an industry that seems to churn out one "revolutionary" idea after the next. "We need to get back to basics," he said, adding, "To try to democratize investing in that fashion is scary."

D'Amico concedes that other companies, such as StockJungle and MetaMarkets, have taken similar approaches to investor empowerment and full portfolio disclosure in the past--and failed. Both StockJungle and MetaMarkets folded those aspects of their operations this summer. In light of that, he says the iFund will be a niche product and, at least at first, "a tough sell."

"This is going to relate to a smaller group of investors out there," he says. "It will happen over time, how much time, I'm not sure."