eToro’s “CopyFunds” – The Easiest Way to Make Money with Trading?

I personally discovered and starting using eToro more than 5 years ago now and my trading journey (with all its ups and downs) has been well documented on this blog. And it’s proved to be of HUGE interest to my blog readers – I get numerous emails every week about eToro, with people asking questions on how to get started and how to find the best traders to copy.

If you haven’t been following my eToro story and would like to catch up, then please take a read through these posts:

£1349 on eToro Last Month, Working Just 4 Hours! – here I introduce eToro, explain what it’s all about and what I find so amazing and attractive about their Copy Trader feature.

My eToro Trading Strategy – Updated for 2013 – in my first update post I reveal my actual trading results! True to form, I don’t hide behind theory or try to hide my mistakes – the opposite, I share exactly what I did with you so you can have the same success and hopefully do even better by avoiding my mistakes!

My 2015 eToro Investment Update – the third of my eToro posts focuses on the layout of the site and all the different stats you’re shown about each trader.

eToro 2016 Review + My Results – after many requests, I created a complete eToro Guide for 2016. This includes information on how to open an account, how to deposit and withdraw money, a complete introduction to eToro and how it works, as well as full details on the personal investment strategy I used to double my money within one year of starting on eToro!

If you don’t want to read all 4 of my previous posts, then just the 2016 update covers EVERYTHING you need to know – it really is a complete and comprehensive guide!

So what’s today’s post all about?

Well it’s not a full results update (that will come later in the year!), but I did want to tell you about an exciting new feature that was introduced to eToro last year… called CopyFunds.

Now you’ve probably all heard of a fund before in terms of trading/investing – think of hedge funds for example. But to put it as simply as possible, a fund is basically a diversified investment portfolio.

If that doesn’t really make sense to you, let me quickly run through an example:

Say I’m an investor, with $100,000. I could put that all into AAPL (Apple stock) which would be a single investment. Or I could diversify and invest $20,000 in AAPL, $20,000 in GOOGL (Google), $30,000 in BABA (Alibaba) and $30,000 in AMZN (Amazon). Or I could split that $100,000 between 20 different companies… that’s basically what a fund is – it’s an investment portfolio, rather than a single investment.

And now eToro have made it possible for us to invest in funds rather than just traders.

Generally speaking, funds are built around a specific industry or idea, and that’s what eToro have done with their Market CopyFunds:

As you can see from the above screenshot, they have market copyfunds called BigTech, InTheGame, BigBanks etc. These are portfolios built around a specific industry or idea or investment strategy.

Let’s take a look at one in more detail, BigTech:

When you click on a fund, you’re given a detailed “methodology” which explains the fund’s concept and what companies it’s invested in.

For BigTech, this methodology is “from smartphones to smart cars… for smart investors. The BigTech CopyFund comprises leading companies from the technology sector. When you invest in the BigTech CopyFund, you get a wide exposure to fields like telecommuincations, entertainment, e-commerce, software solutions and more. The CopyFund was created and managed by eToro’s investment committee, which periodically rebalances its allocation.”

You can find the methodology for any CopyFund by simply going to its Stats page:

There you’ll also be able to see the Fund’s Asset Allocation, which shows how much is invested in each company:

Here you can see that the biggest investments for the BigTech Fund are:

• AAPL – 20.54% (Apple)
• GOOG – 16.41% (Google)
• MSFT – 14.58% (Microsoft)
• AMZN – 11.34%(Amazon)
• FB – 11.18% (Facebook)

You can also see a Performance table and chart, which show the Fund’s results by month:

*Important – these Funds were only started in July 2016, so all results before that are back-tested.

What does this mean? Well basically those are what the results would have been if the funds were “live” at that time. Now personally I don’t like back-tested results as they are not indicative at all, so I would suggest ignoring them completely.

But as you can see, performance from this BigTech Fund has been excellent (judging only by the actual results!). Since the fund was started in July 2016, the monthly results have been:

+7.12%
+2.16%
+3.75%
+0.53%
-4.04%
+2.34%
+5.66%

So while these aren’t huge gains (that’s part and parcel of investing in funds) there has been 6 winning months out of 7, which is very impressive!

Other than that, on the Stats page you can also see the risk score and max drawdown amounts:

As well as the amount of investors and the total amount of money eToro members are allocating to this fund:

Then there is also the Portfolio tab, which shows more in-depth data on the Fund’s investments:

And last but not least there is also a Chart tab, which shows s simulated $10,000 investment and how that has progressed over time.

So now that we’ve gone over what a fund is, and I’ve shown you an actual fund on eToro, what are my thoughts?

Well honestly I’m not that excited by the Market CopyFunds…

Don’t get me wrong, it’s a great idea and it works well, but to me the whole point of a fund is that it makes investing easy, even if you’re not able to devote hours every day to it.

Say I want to invest in technology companies, but it’s too risky for me to just choose one or two companies to invest in and I don’t have the time or ability to manage a portfolio of investments, then a fund such as the BigTech fund is great.

But the problem is, eToro have already created something better – the CopyTrader function!

As it’s as easy for me to copy a trader who is actively managing a portfolio of companies. That way I get the same low risk (a diversified portfolio) but higher potential rewards as a fund is more conservative with its choice of companies and trading (in theory at least).

But this actually brings me perfectly on to the next part of the CopyFund tool, and this is something that I am really excited about – Top Trader CopyFunds.

eToro tested “thousands of different algorithms to find the top traders on eToro and incorporate them into various copy funds.”

Let me just repeat that part again – these are algorithms created by eToro themselves that were built to find the best traders for you to copy!

This is pretty much exactly what thousands of you have asked me for – if eToro hadn’t already made trading easier than ever before, they’re now even doing the one job we had to do – find traders to copy!

As if that wasn’t exciting enough, let me show you a few of the Top Trader CopyFunds and the methodology behind them:

• Active Traders – “the 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 CopyFund’s algorithm enforces a tight stop-loss on all traders, removing them immediately and transferring the invested capital back to your account, until the next rebalancing event.”

• GainersQtr (Quarterly Gainers) – “the CopyFund is built on sustainable trading behaviour, which means selecting up to 50 ‘solid’ traders and allocating the weights evenly among them. The algorithm analyses the traders to pinpoint the ones who are most likely to generate an alpha in the next quarter. If any of the investors within the CopyFund demonstrates a wide fluctuation outside the risk score’s parameters – he will be removed from the CopyFund portfolio at eToro’s discrection and replaced with another investor, at the next rebalancing event.”

With these Trader CopyFunds, your portfolio is made up of traders, rather than companies!

Now this is something I find more exciting – as for me the whole point of eToro is that I invest in people, not companies!

Of course the big question is whether or not these eToro algorithms are going to be more successful than the system I already use to select traders!

I guess you’ll just have to wait until my full update to find out 😉

But overall this is a very exciting development and I’m looking forward to seeing how these algorithms progress (in theory, the performance should improve over time as they get more data and real life results). I would love to see eToro create some high risk high return Trader CopyFunds, as at the moment they’re going for more traditional “safe” funds, which is understandable really.

However I do also have to point out one downside before we end today’s post, and that’s the minimum investment amount… which is $5,000 for CopyFunds. As with any fund you have to have a number of different positions open at any one time, therefore eToro have imposed a minimum investment amount.

You can read more about this in the CopyFunds FAQ section.

As always I’d love to hear your thoughts! Have any of you invested in a CopyFund and what were your results like compared to straightforward trader investing?

Let me know down below in the comments section.

Until next time!
Andrew

All trading involves risk. Only risk capital you’re prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice.