Social trading opens the opportunity to diversify
and moderate risk in a way no other trading
platform can. Some social trading platforms have
created special portfolios of securities and traders
designed to give their users an extra edge. They
give traders a chance to invest in pre-set funds.
Some of these funds follow the market or indices,
some funds invest in a group of elite traders, and
some are promoted by professional traders. When
you have a broad range of investment choices, you
can use these funds to diversify, reduce risk, use as
long holding positions, or extend the reach of your
investment money. While other platforms have
a range of services, we will be looking at eToro’s
proprietary CopyFunds™ in this chapter to give
you an idea of the investing possibilities available
to you.
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Grouping together top traders allows spectacular
diversification, especially for investors with only
a small amount of money. Even a few hundred
pounds can be put to work by dozens of traders.
This use of the crowd magnifies the diversity of
your portfolio to potentially reduce risk. Funds
can group traders according to what they trade,
their performance, or how frequently they trade.
Platforms may use management or complex
algorithms to pinpoint ideal traders for funds and
to rebalance the fund portfolios.
For example, here is how eToro draws on the
strengths of their best traders. The returns listed
are as of 17 July 2017. While funds may be lower
risk, remember that all trading carries risk. And past
performance does not guarantee future results.
Quarterly Gainers: This fund is rebalanced every
quarter with up to 50 of the platform’s top solid
traders. The algorithm looks for traders who are
most likely to generate positive growth in the next
quarter. Traders must stay within the funds risk
score parameters to remain in the fund. It has
invested in ETFs, currencies, commodities and
stocks with a risk score of 2 (out of a risk level from
1-10) while returning 10% in the last 12 months.
Active Traders: This fund draws on a group
of frequent traders with proven track records.
Algorithms select those traders expected to have
the best risk/reward ratio. It sets tight stops and
only allows small drawdowns before stepping out
of a trade. The average risk score is 2. Over 50%
of its holdings are currently in stocks with the
rest spread across currencies, cryptocurrencies,
indices, commodities, and ETFs. Return for the last
12 months: 16%.
Trending Traders: This fund draws on the ten
traders with a risk score of 7 or below who are
gaining the most copiers. The fund rebalances
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241
monthly and is managed by eToro’s investment
committee. As of July 2017, the fund was heaviest
in stocks, but that could change as the traders
are rebalanced. This fund allows slightly larger
drawdowns of up to 3.5% weekly as it returns 53%
over the last 12 months. It carries an average risk
score of 3.
CopyPlus R4: This fund uses social trending to
choose low risk traders with the biggest upswing
in copiers during the previous month. The eToro
investment committee rebalances the fund
monthly with new traders. It has a risk score of
3. Over the last12 months this fund has returned
13%.
Using the crowd to trade dilutes results but also
moderates risks. Individual traders may perform
better, but these funds are a great way to spread
a small amount of money across a broad range of
assets.
Another way to invest is to place your money into
a bundle of securities of a specific class. Here you
gain access to different market sectors. You can
choose a specific area of the economy that you
believe is heating up.
You can also use these funds to diversify. If you
copy a trader investing in currencies, you might
choose to hold a fund that invests in indices or
blue chip stocks to reduce overall risk in your
account. These funds restrict assets to sectors as
opposed to the uid trading and diversity found in
many traders you may copy.
Here are some of the market CopyFunds™ traders
on the eToro platform you have access to. Returns
are prices as of July 2017. You know this already,
but compliance says we need to say this each time
there’s a link to eToro. ‘All trading involves risk.
Only risk capital you are prepared to lose and past
performance does not guarantee future results’.
17.2 Market CopyFunds™
242
The Big Banks: Banks in particular, follow cycles.
If you believe banks and financial institutions
throughout the world are in an uptrend, this is your
fund. It is 100% invested in stocks in the financial
sector and is rebalanced periodically by the eToro
investment committee. It has a risk score of 5 and
has returned 45% in the last 12 months.
Big Tech Companies: Want a bite of the Apple…
and Google, Microsoft, Amazon, Facebook, Alibaba,
eBay and others? Gain a piece of all of them with
this fund. The risk score is 5 and it has returned
40% in the last 12 months.
In the Game: Gaming may be one of the hottest
and fastest growing market sectors.You can put fun
into your portfolio with this fund. It holds NVIDIA,
Sony, Activision Blizzard, Electronic Arts, Zynga,
GameStop, and others. The volatility of gaming
stocks increases the risk score to 5 and returns
from the last 12 months are currently 60%.
All Stocks: If you want to diversify into stocks in
all the major indices, this fund may be for you.
It invests in the biggest stocks from the biggest
economies in the world including the Dow Jones
30, S&P 500, Nasdaq 100, China 50, DAX30, Euro
Stoxx 50, AUS 200 and more. It has returned 25%
over the last 12 months and carries an average risk
score of 5.
Gold and Energy: Think it’s time for a gold and
energy comeback? Invest in the hard commodities
with the fund that holds ETFs from the energy
sector and CFDs in stocks and commodities. Gain a
stake in US Natural Gas (UNG), US Oil (USO), SPDR
Gold (GLD), Energy Select Sector SPDR (XLE), Junior
Gold Miners ETF (GDXJ) and Gold Miners (GDX) and
more. With an average risk score of 4, this fund has
returned -9% over the last 12 months.
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Crypto-Currencies: This Top Cryptocurrency
CopyFund™ invests in Bitcoin and Ethereum giving
Bitcoin the heavier weight. Easily gain access to
one of the fastest rising currencies in the world.
It has higher volatility but offers the potential for
impressive gains. Highly volatile cryptocurrencies
usually carry a risk score of 7, and has returned
52% since inception.
CryptoFund CopyFund™: This fund takes
advantage of all cryptocurrencies traded on eToro.
It currently invests in Bitcoin, Dash, Ethereum,
Ethereum Classic, Litecoin, and XRP. The fund’s
initial allocations gave Bitcoin about 50%, Ethereum
about 25% and the remaining cryptocurrencies
about 5% each.This fund is rebalanced each
month, while the weight of the assets may change
any time at the discretion of the Portfolio Manager.
US Market ETFs: Jump into the largest economy
in the world if you believe it will become even
bigger. This fund gives you a piece of the entire US
economy. You’ll hold CFDs in high yield American
bonds and stocks from mega corporations to small
businesses. It includes the Russell 2000 ETF (IWM),
SPDR S&P Midcap 400 (MDY), QQQ to keep up
with the FANG stocks, and others. It is rebalanced
periodically by the eToro management team. It
holds a score of 3 and has returned 17% in the
last 12 months.
Global Market ETFs: This fund includes all the
economies of the world except the US market.
Gain easy access to potential profits from Europe,
Australia, Japan, China, Russia, Brazil, and many
emerging markets. The portfolio is periodically
rebalanced by the eToro management team. Over
the last 12 months, it has returned 15% with a risk
score of 3.
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Sector ETFs: Spread your assets across the
entire US economy by investing in ETFs in a broad
range of sectors including consumer staples &
discretionary, finance, healthcare, infrastructure,
real estate, technology, utilities, and more. This
fund holds a risk score of 3 and has returned 15%
in the last 12 months.
Food and Drink: This fund is designed to cycle
stronger in economic weakness when consumer
staples are a dependable fall-back. Invest in
McDonald’s, Starbucks, Coca-Cola, General Mills,
Dean Foods, and the like. It has a risk score of 4
and a return of 8% over the last 12 months.
Travel and Leisure: Traders may want to jump
into the travel and leisure market created by low-
interest rates and more discretionary income.
They have an easy way to invest with this fund. It
includes hotels, airlines, booking agencies, credit
card companies and upscale shopping. It holds a
risk score of 5 and has returned 16% in the last 12
months.
Four-Horsemen: Invest in the four largest
technology companies if you believe these super-
heroes of the new tech age will continue to
excel. eToro’s investment management team will
rebalance the fund as needed. A new eToro fund,
it has a risk score of 4, and has returned 14% since
it’s inception in February of 2017.
Traders may want to look at funds that focus on
the market direction. With a basket of CFDs and
shorts, it becomes even easier to take advantage
of downturns. Old time investors say that some
stocks can lift a market, but when the markets fall,
80% of the stocks dropped in value, regardless of
their fundamentals. When traders see technical
analysis that indicates a potential pullback, they
17.3 Directional Funds
245
may want to invest in funds that make it simple to
take advantage of the drop.
For example, eToro has several funds designed to
profit in bear cycles. Most of these are new funds
at eToro and have not yet developed a risk score
or track record.
PanicMode: This fund is for traders who expect
the markets to dive. It goes short on stocks and
long in metals. This fund is a clear directional play
you may want to use in short pullbacks.
Short Worldwide: Worried about political tensions,
disasters, or a looming crisis? Add protection to
your portfolio by shorting major world indices.
Short Banks: Defend your banking positions by
hedging against losses with this fund. It shorts
major banks and covers the entire financial sector.
Short Tech: This fund takes short positions on
major tech companies. It effectively hedges your
portfolio against a drawdown in the entire tech
sector.
Short ETFs: This new eToro fund lets traders hedge
against major worldwide ETFs and takes a long
position on the VIX index and some commodity-
based ETFs. This fund is managed by the eToro
investment committee and rebalanced periodically.
Some platforms invite professional traders to offer
branded funds. It is beneficial to the professional
because they get the support system and the
exposure to a whole new group of investors. It’s
also beneficial to the traders because they have
an opportunity to build on the depth of experience
and skill a professional brings to the table.
These funds are set up and maintained by the
17.4 Partner CopyFunds™
246
professional trader. They choose the securities, the
asset allocations and when to rebalance the fund.
Some funds may be back-tested to increase the
probability the strategy will produce the desired
returns. It is a reflection of the professional’s
investment style and research. Some funds have
eToro management mimicking the style of famous
investors.
Because platforms may have chat rooms or feeds,
copy traders have remarkable access to the fund
administrator. They can ask questions or offer
suggestions. They gain insights and may learn
more about the fund, the securities, and investing
strategies from the professional as they interact.
Remember though, all trading involves risk, and
past performance does not guarantee future
results.
eToro offers several Partner CopyFunds™ with
more on the way.
AlphaCore by WeQuant: WeQuant are the
portfolio managers of the parent company, WeSave,
and are based in Paris. This fund invests across all
markets with ETFs that follow indices. Its goal is to
deliver performance with minimal fees. The core-
satellite strategy builds a core portfolio based on
deep market analysis and macroeconomics. The
satellite portion follows market thematic rotations.
Top trades are QQQ, SPX500 and HYG. It has a low
risk score of 3 and a return since inception of 6%.
This fund is managed by the portfolio manager
of eToro (Europe) Ltd. It mimics the legendary
Buffett’s investment methods and the stocks
held in Berkshire Hathaway. The fund includes
businesses engaged in property and casualty
insurance, utilities and energy, rail transportation,
finance, manufacturing, retail and services. The
main holdings as of July 2017 are Kraft Heinz
Company (KHC), Wells Fargo (WFC), Apple (AAPL),
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and Coca-Cola (KO). With a risk score of 3, this fund
has returned 4% since inception.
Dash, a leading Israeli investment house
collaborated on this fund. It is designed to beat
the MSCI ACWI index, which is a benchmark for the
world equities markets. The fund banks on rising
oil prices while managing risk. Major holdings are
iShares MSCI ACWI Index Fund (ACWI), Emerging
Markets index MSCI iShares (EEM) and SPDR S&P
Midcap 400 (MDY). With a risk score of 3, the fund
has returned 3% since inception.
based on the SEC filings of Carl Icahn Enterprises.
This American business magnate and investor holds
substantial positions in corporations engaged in
automotive, energy, food packaging, gaming, home
fashion, investments, metals, mining, rail cars, and
real estate. Top positions are Icahn Enterprises
(IEP), American International Group (AIG), and
Cheniere Energy (LNG). This fund carries a risk
score of 4 and a return since inception of 0%.
Associates Inc: Greenhaven Associates in the UK
manages over $5 billion in assets. This fund seeks
to duplicate the success of Edgar Wachenheim’s
strategies. Major securities include Goldman Sacks
(GS), FedEx Corporation (FDX), and Citigroup (C).
This fund has a risk score of 4 and a return since
inception of 11%.
CopyFunds™, copy traders, CFDs, and inventive
online platforms are all part of the fintech
revolution that makes investing more accessible
to the average trader. It introduces simplicity
and accessibility to traders all over the world. It
brings new possibilities to invest in currencies,
17.5 Conclusion
248
commodities, global stocks, and international
indices.
The fintech revolution also opens up new kinds of
investing opportunities and new ways to think about
money. Never before have investors been offered
the chance to buy and trade the decentralised
currencies like Bitcoin. The blockchain and
cryptocurrencies also show how technology is
transforming the ways we think about money, and
even stocks.
Instead of traditional IPOs (initial public offerings) of
stocks, fintech companies offer ICOs or initial coin
offerings. New blockchain companies use crypto-
tokens instead of stock as a way for investors to
own a portion of the company.
Even in the new fintech world, there are some
constants. Traders need an investment plan and
a trading strategy. They are more likely to find
success as they add a steady amount to their
investment portfolio each week or month. They
must assess the risks of their trades against their
own personal risk tolerance.
And there is the constant truth that trading
involves risk. You can lose your capital. But
you may also capture a portion of the vast
wealth generated by the financial sector. Past
performance does not guarantee future results.
But experience and training in tracking results
give a much higher likelihood that you can
generate consistent and profitable trades.
New online trading platforms that take full
advantage of financial technology offer speed,
ease of trades, the enjoyment of investing with
the crowd, and an opportunity to see impressive
results.
Happy trading!
Your capital is at risk. Cryptocurrencies can uctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is
not supervised by any EU regulatory framework. Past performance does not guarantee future results. This information is for educational purposes
and not investment advice.
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