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eToro have introduced their new CopyFunds investment service. It’s focus, we would suggest, is to broaden the current platform membership which sits at around the 5m mark by attracting investors, in addition to traders, to the platform.

Designed to work in the same way as a fund, each CopyFund will offer a bundle of CFD stocks, commodities and ETFs designed to reflect its  chosen market strategy.  Current choices range from Sector specific funds such as Technology, Cryptocurrencies or Banking, to copying leading investment fund strategies such as Warren Buffet’s Berkshire Hathaway. Choice is a little limited at the moment but we expect to see it grow as more partners join.

eToro CopyFunds

Investors will be able to review the assets that make up the fund which means you can make an informed decision about whether a fund matches your ideals. Once you have chosen your fund, all you’ll need to do is allocate a budget to invest and get started. Bear in mind there is a minimum budget for these fund though – you’ll need to invest at least $5,000 in each CopyFund.

Yoni Assia, CEO and Founder of eToro, says – “Our Copy Funds are a unique investment instrument, which allows you to invest in a group of assets, bundled together according to different market strategies. “Copy Funds” are alternative investment products, tailor-made for serious investors looking to generate returns in today’s low interest-rate environment.”

While there’s no restrictions on selling your investment holdings at any time, CopyFunds are structured as medium to long term investment vehicles, which require longer investment periods to realise worthwhile gains. By definition, CopyFunds are meant to serve as a more conservative investment channel, and therefore aim to offer double digit, yearly returns, while mitigating the risk associated. However, you should note that these returns are not guaranteed – as we all know, stock markets can go down as well as up.

 

Costs of investing in CopyFunds

As opposed to a traditional investment house, there are no management fees associated with investing in an eToro CopyFund. However, the underlying financial transactions will incur fees through eToro’s spreads. There are also overnight and roll-over fees to apply if you use leverage. The higher the leverage, the higher those fees are. Something to bear in mind if you want to invest long term in a long position fund using high leverage in your account.

Rebalancing CopyFunds

Over time, the value of individual ETFs in a diversified portfolio move up and down, eventually drifting away from their target weightings. For example, over the long term, stocks generally rise faster than ETFs, so the stock portion of a portfolio may go up relative to the ETF portion. eToro’s rebalancing mechanism closes and opens positions periodically, to keep the asset allocation ratio, and maintain the CopyFund’s strategy.

The Armchair Trader opinion – “We like eToro’s innovative approach to CopyTrading. With this new service, eToro is providing investors globally with access to the trading strategies of experienced professionals and hedge funds. Here at The Armchair Trader, we feel this is a great way for beginners to get started in the markets.

However, there is one drawback that you should be aware of – and it’s a pretty big one. As a market maker, eToro won’t purchase any physical assets on your behalf – you are essentially trading their version of the markets rather than a central exchange. This means that you never actually own any of your investments. The result is that you won’t be able to take advantage of dividends and the positive impact that compounding can have on your portfolio.

To enjoy those benefits, you’ll need to purchase stocks or funds through a stockbroker.”

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Michael Morton

Michael has worked within the Financial Industry for more than 20 years. Starting out as a financial analyst, he has extensive experience working with fund management groups and brokerages.

With an interest in Stocks and Shares, Funds, ETFs and Commodities, his investment focus is medium to long term gains, with the objective of financial security on retirement, and building wealth for his young children for their adult life. His broker of choice is Hargreaves Lansdown.

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