Estimated reading time: 7 minutes
Late last year (2016), eToro, which is the leading social trading platform and broker introduced a product called CopyFunds (or Copy Funds).
CopyFunds is described as their next-gen investment product for serious investors with medium to long-term goals.
According to the CEO of eToro, Yoni Assia, CopyFunds is a product that’s considered a unique investment vehicle which allows investors to profit from a group of assets that have been bundled together and designed according to different investment strategies.
Actually, Copy Funds product is said to be an alternative form of investment for users of eToro.
It has great potential, and your job as an investor is to learn how it works and decide whether or not it’s worth your consideration.
From the description above, you can see that this is already an exciting product to start with.
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All of us have probably heard of the word ”fund” before when people speak in terms of investing. You can think of a hedge fund for instance — you get the picture?
Now, to make it easier to understand, we can say that a fund is basically an investment product consisting of diversified group of portfolios.
To get a clear picture of how CopyFunds by eToro works, let’s consider this example:
You are an investor with $5,000 to invest (the minimum amount that eToro is asking for this particular product), you could commit all of that money into Google stocks for example.
However, you could also diversify your investment by putting $2,000 on GOOGL(Google alphabet), another $1,000 on AMZN (Amazon) and the rest on BABA (Alibaba).
Or better still, you could split your initial investment between 7 or 10 companies depending on how you want to diversify your portfolio.
Basically, CopyFunds (Copy Funds) follows the above investment model to keep medium and long term risks fairly low.
Again, realize that eToro was designing this product so that we could get a chance to invest in real funds as well.
After all, eToro users have, for a long time, been investing in traders as opposed to funds.
Generally, funds are designed around a specific idea or industry, and is quite different from the idea of following traders.
You can tell this by the name of the products that fall under eToro’s Copyfund (Copy Fund) model. Some of these products have been dubbed BigBanks, InTheGame and the BigTech.
When clicking on a specific fund on eToro, you will be given an overview of the fund’s concept plus a list of companies that invest in it.
If you chose BigTech for instance, you should expect smart cars, smart phones etc. These are for smart investors.
Basically, BigTech puts together the big brands that rule the technology space.
So when you actually pick something like BigTech CopyFund, you get access to a wide variety of companies and startups in industries like telecommunication, software, e-commerce, entertainment etc.
All Copyfunds products are created and managed by the platform’s investment committee.
This committee is also charged with the responsibility of re-balancing portfolios over time, and this depends on performance results.
eToro is a very transparent platform by the way. The platform has a stats page where you will see how each CopyFund product is invested as well as performance over time.
Performance is represented on charts and tables which basically show how particular funds have been performing on a monthly basis.
But what exactly does this mean?
Well, it means that those funds would have performed as indicated on the results if only they were ”live”. These are just back-tested results.
However, as you can see from the above screenshot, performance of BigTech Fund was really good.
Whereas the gains weren’t huge, realize that the fund performed well 6 straight months out of 7 — which is considered impressive by all standards.
Aside from this, you can also see the risk score as well draw down that is associated with a particular fund.
And then you can also see the amount that eToro investors allocated to particular funds.
If you click the portfolio tab, you get in-depth information on a particular fund.
Finally, there is a chart which shows simulated performance of someone who invested 10K and how his portfolio would have performed over time.
Anyways, we now know what a Fund at eToro looks like and what things are involved.
Now, let’s speak a little bit concerning what our opinion is.
Funds are an investment vehicle that makes investing easier even if you don’t have time to allocate to this kind of thing.
If my goal is to invest in tech companies, yet I don’t want to risk my money on two companies, I could choose a product like eToro’s BigTech Fund.
It gives me the opportunity to diversify my investments even if I lack time or the ability to manage my portfolio.
Now, am glad that eToro created a handy tool which they labeled ”The CopyTrader Function’‘.
It’s now easier for me and other users of eToro to copy traders who are actively managing a portfolio of companies.
Secondly, I also get the same low risk that this trader is exposing themselves to since a fund is aimed at diversifying investments while being conservative in terms of the choice of companies and strategy used.
Now, this brings us to our second favorite tool — which we love very much. It’s called Top Trader CopyFunds.
The company eToro actually did us a huge favor by putting to test thousands of algorithms that would help investors only copy the top traders.
Just in case I failed to drive my point home, let me repeat again: eToro has tried and tested thousands of algorithms to help users find and copy the best traders on the platform.
They’ve saved us from the one tough job of finding traders to copy.
And as if this was not enough, eToro went ahead to introduce a few Top Trader CopyFunds as well as the methodology used in their design.
This Copyfund is designed to help you build a sustainable trading behavior.
It consists of 50 best performing traders whose weights are distributed evenly among them.
With the smart algo working behind the curtains to identify traders who are likely to generate an alpha in the next phase or quarter, we are assured of long term sustainability.
Also, in case a trader who had been selected happened to demonstrate a huge fluctuation which is outside the risk score parameter, that trader is eliminated at the company’s discretion. This happens in the next ”re-balancing” phase.
This one identifies a huge number of investors with proven track record over time.
Active traders are selected based on the ones who are likely to generate the best risk/reward ratio in the next phase or quarter (it’s done by eToro’s algorithm).
It’s important to note that during this period, the company enforces a tight stop-loss on all traders, thus eliminating traders accordingly and transferring your invested capital back to your account awaiting the next re-balancing phase.
eToro is a nice platform with a revolutionary idea. However, their CopyFunds (Copy Funds)product is extremely smart and exciting to use as an investment tool. We actually advice you to check it out immediately and see its potential.
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