The Social Trading Platform eToro has recently launched the eToro CopyFunds, a new and innovative investment product that promises to give users the ability to:
- invest in a professional way
- simplifying the diversification process
- at no additional cost
- with an innovative strategic allocation process
With this move, the Social Network eToro makes yet another step forward in becoming a complete platform for all types of investment, from Retail Trading to Social Trading, up to Fund Investing.
So, let’s see what they are and how eToro CopyFunds work.
What are the eToro Copyfunds?
According to the eToro CEO, Yoni Assia:
“Our CopyFunds are a unique investment instrument, which allows you to invest in a group of assets, bundled together according to different market strategies.”
There are two categories of CopyFunds:
- Market CopyFunds: they include stocks, commodities, indices, and any other assets with the exception of physical persons
- Top Trader CopyFunds: they include only real traders
By investing in CopyFunds you do not invest in a single asset or person, but on the whole range of assets included within the CopyFund, according to a resource allocation strategy managed with the use of several algorithms and supervised by the eToro’s Investment Committee.
Obviously, the figures invested by the users will be then managed proportionally, depending on the size of each investment.
How do eToro CopyFunds work?
The functioning of an eToro CopyFund is very similar to that of a normal investment fund, headed by a manager who decides where and how to invest the money of the fund investors.
However, there are some substantial differences.
With eToro CopyFunds, the user does not deliver the capital in the hands of the manager, but he simply instructs the manager (eToro) to open/close positions (of eToro CFDs) on his own account, according to the investment strategy adopted by the algorithms and proportioned to his capital size.
If, in a normal fund, the investor must pay the full amount of the shares he wants to purchase, with eToro CopyFunds, being a replication of CFDs positions, you can take advantage of the Financial Leverage effect. This means that you can invest, and be positioned in the market, for figures much larger than the capital you actually own. While it’s true that with Leverage also the risks increase, if used in the right way, it can become an opportunity to those who do not have huge amounts of capital to participate in the market.
We can say that the eToro CopyFunds have many things in common with ETFs (Exchanged Traded Funds), but even here we can find an important difference. ETFs do not contemplate Short positions, but only Long. As we shall see shortly, the Top Trader CopyFunds, replicating the strategies of traders, obviously include short positions. But that’s not all, even a particular Market CopyFund includes short positions in certain conditions, and this is definitely an innovative particularity.
Analyzing the eToro CopyFunds Prospectus
Each eToro CopyFund comes with a sort of information Prospectus (something like a KIID).
Within the Prospectus, you can observe many interesting data, including:
- monthly performance (simulated) of the fund over the previous three years
- the Risk Scores, a proprietary eToro parameter that gives a score from 1 to 10 to the inherent risk level
- the graph on the allocation/exposure where you can observe on what assets the fund invested, when, and in what proportion
- other useful and interesting information, including other charts to better analyze the fund structure
The eToro CopyFund Prospectus is virtually identical to the eToro Popular Investor profile. Therefore, if you are already an expert with the latter, you should have no problems; otherwise just follow the previous link to our detailed guide.
Types of eToro CopyFunds
Let’s see the features and the offer of the two types of eToro CopyFunds.
– eToro Market CopyFunds
The eToro Market CopyFunds are comprised of CFDs on stocks, commodities, indices and ETFs.
Each fund is constructed and managed using complex algorithms that decide the assets, the parameters and the strategic allocation of capital, with periodic adjustments and rebalancing.
All this is overseen by the eToro’s Investment Committee, which collaborates with the investment bank Barclays for support and consulting services.
Here is the complete list of the current eToro Market CopyFunds:
The BigBanks CopyFund diversifies your investment across the financial sectors, comprising banks, multinational financial services providers and other financial institutes in one complete portfolio.
The BigTech CopyFund comprises leading companies from sectors like technology, telecommunications, entertainment, e-commerce, software solutions and more.
The InTheGame CopyFund comprises leading gaming companies and offers excellent exposure to one of the hottest and biggest markets in the world.
The AllSTocks CopyFund is built from the world’s leading indices. It’s like investing in all of the biggest stocks, from the biggest economies, with a single click of the button.
The GoldenEnergy CopyFund comprises leading ETFs (Exchanged Traded Funds) from the energy sector and offers a broad exposure to CFD stocks and commodities.
The USA-ETF CopyFund gives you a complete and comprehensive exposure to the entire US economy, with High-Yield American bonds and the CFD stocks of various US companies.
The GlobalETF CopyFund offers excellent exposure to every market in the world, except the USA, therefore to markets of Europe, Australia, Japan, China e the Far East, Russia, Brazil and many emerging markets.
The SectorETF CopyFund is perfect for the investors who believe the USA will continue to dominate the financial markets, offering extensive exposure to a wide variety of sectors: Real Estate, healtcare, finance, infrastructure, and more.
The FoodDrink CopyFund comprises leading companies from the food and beverages manufacturers and suppliers, a broad large market that is always in demand.
The PanicMode CopyFund is definitely one of the more innovative, offering a strong and comprehensive position against crashing world markets. It comprises Short Positions on major market indices, and Long Positions on Gold and Silver.
The TrumpWins CopyFund was created in order to best capture the effect of Donald Trump’s victory on the markets, by combining different Short and Long positions on a range of strategic assets.
The TravelKit CopyFund comprises companies from the Travel and Lifestyle sectors (hotel, aviation, global financial services providers and more) to enjoy a wide exposure to the results of positive financial condition in time of low interest, financial growth, increased consumption and more.
– eToro Top Trader CopyFunds
The eToro TopTrader CopyFunds are funds that replicate real live eToro traders (also called Popular Investors).
These traders are carefully selected using several advanced algorithms, which monitor, insert, manage and automatically replace the traders within the fund.
Obviously, always under the supervision of the eToro’s Investment Committee.
Here is the complete list of the current eToro Top Trader CopyFund:
The GainersQtr CopyFund (quarterly gainers) is built on sustainable trading behavior, which means selection up to 50 ‘solid’ traders and allocating the weights evenly among them.
The ActiveTraders CopyFund rallies a large number of frequent traders with a proven track record. The algorithm selects the ones who are most likely to achieve the best Risk/Reward ratio in the following quarter.
The TrendingR7 CopyFund comprises the Top 10 fastest gainers by copiers on the platform, with a Risk Score of 7 and below.
The CopiersPlusR4 is comprised of ‘solid’ traders, with a Risk Score of 4 and below, which have shown a growth in copiers during the last month.
eToro CopyFunds Minimum Deposit
The minimum deposit to be able to invest in the eToro CopyFunds is $ 5,000.
The reason for such a high minimum capital is justified and due to the high level of diversification.
Investing on an eToro CopyFund means automatically replicate different CFD (Contract For Difference) positions on your account, even several dozens, keeping them open even for long periods in the case of Market CopyFunds.
To ensure you have the necessary margin capital to replicate all the positions, with the correct proportions, you need a minimum capital of a certain size, that eToro has precisely quantified at $ 5,000.
How long should I keep the money invested in CopyFunds?
The eToro CopyFunds, especially the Market CopyFunds, being actual investment funds, are meant as investments with long-term horizon.
Nevertheless, you can terminate your investment at any time, without any additional cost or commission, as is generally the case with classic ‘old style’ funds.
eToro CopyFunds Costs
One of the most interesting features of the eToro CopyFunds, a feature that sets them apart in a very advantageous way from regular funds, is the absence of an effective management fee.
If in normal investment funds you usually pay a yearly 5% in management fee, for the eToro CopyFunds service you do not pay anything extra.
The costs for this service are those already comprised on eToro for the opening of new positions, namely the spread costs and rollover costs for overnight positions (you can find the details here).
In short, nothing new: you pay for the opening, closing and the overnight maintenance of the positions, as it normally happens with the eToro copy trading system, or with any other broker.
In the case of investment in Market CopyFunds, being strategies that buy stocks and hold them in the portfolio for long period, we need to consider and keep an eye on Rollover costs, since the use of too much leverage may weight on the investment convenience.
Our Opinion on eToro CopyFunds
Our opinion on eToro CopyFund is definitely positive.
Having been launched on November 8, 2016, it is definitely too early to reason and evaluate the actual performance of these ‘managed by algorithms’ funds.
However, the possibilities they offer and the relative absence of service costs will definitely make it very interesting.
Here on InvestinGoal we have always preached an approach to Social Trading in an investment manner (so much so that we have created a guide in this regard), more than in a trading manner.
The eToro CopyFunds, in this sense, are a good synthesis.
More specifically, regarding the TopTrader CopyFunds, i.e. the funds that replicate people, I think they can be a good alternative for those who are starting out and cannot find the best eToro traders by themselves.
However, I believe that knowing how to autonomously handle eToro, building with professionalism your personal CopyTrading strategy, is still the best method to get the most out of this Social Trading Network, and the knowledge on how to best do it is here on InvestinGoal.
As for Market CopyFunds, they are really interesting for those investors who already have experience and want to take advantage of a service similar to that of a classic investment fund, but with no additional cost and with a relatively low entry capital (if indeed compared to traditional investment funds entry capital).
We will keep eToro CopyFunds monitored in the coming months so that we can update this post with real data and feedback.