We’ve just written about using recent price performance as a way to build a trading system for mutual funds, specifically in this case the Fidelity Select Fund trading system. So, given that the integrity of the whole system is built solely on the price information that we have available, it would be no surprize to find that the integrity of the data feed is very important. The good news is that you can find mutual fund quotes on loads of web sites, so this is really of little concern. Well, that’s not quite true.

There are a couple of things to keep in mind when looking for mutual fund quotes.

Historical data: You really need historical data. Unless you are prepared to absolutely capture the data every market day, it’s apparent that historical data not only lets you get started right away, but you can plug the wholes when you miss an update.

Dividend Distributions: Mutual funds aren’t like stocks when it comes to dividends. Generally, they have to distribute both the dividend income and capital gains that they realize every year. The often tend to do this once a year or so, so it can be a fairly large distribution. So the correct way to track a fund’s value when looking at price performance is to adjust the historical data for the dividends. That way you don’t get a large price discontinuity on the distribution date, that looks like a large price drop when in fact it might have actually gone up. This is the biggest problem with Yahoo’s mutual fund quotes, as this is handled inconsistently, so it’s hard to tell if it has been handled or not. The second problem related to this is the speed at which the dividend distributions are posted. If it takes several days to get it entered, then the system behaviour is going to be erratic around the time of the distribution.

Fidelity’s Mutual Fund Distributions: Fidelity seems to be fairly consistent with their stock mutual fund distributions. The will often have a distribution in April, almost always on a Friday. They space out the different funds over a 2 to 3 week period, so Fridays in April can be an adventure if you are watching the fund prices daily. Then the same thing happens again in December.

So, you need to have dividend corrected data, and you need it in a timely fashion. The best product we’ve seen and the one we use is from http://www.fasttrack.net They correct all their fund data, and for the Fidelity funds, usually the Friday of the distribtution is not corrected, but by Monday it is. So you just have to watch it for one day a couple of times a year.

Next time we will discuss the trading system software we use to handle all this data.