Author: Mark Joseph T. Fernandez, CPA, AFA
Mark is the number 1 Popular Investor – Fund Manager in the Philippines. He is a public speaker having taught several learners in finance, investing and entrepreneurship concepts since 2014. He is also the founder-chairman of the FinancePH Group of Companies which currently is into 5 different types of business.
Most people have been investing in mutual funds and UITFs. But did you know that there is something that is almost similar to mutual funds but with possibly much greater benefits?
Introducing COPY TRADING. Before you continue reading the article, please watch the video below to understand what copy trading is:
Definition of Mutual Fund vs Copy Trading Fund
A mutual fund is a kind of investment that is derived from putting the money of different investors into a pool, which will be used in investing in other assets such as stocks, bonds, and short-term debt among others. An investor who buys shares in a mutual fund becomes a co-investor with other investors and will be entitled to the income (or loss) that the fund generates.
Meanwhile, in copy trading, investors are allowed to observe and follow the behaviour and strategy of expert investors in order to have the same position and track record as these expert investors. Although both techniques are beneficial for investors who have little to zero knowledge about financial markets or do not have time to observe and study the movements in the financial markets, there are subtle differences.
The person who controls the fund and implements the investment strategy is called the mutual fund manager. Meanwhile, the person who manages a copy trading fund is called a popular investor. The number one social trading platform broker globally is called eToro. Here you can find thousands of popular investors from all over the world which you can choose to copy. In the Philippines, the top most copied Popular Investor is Mark Joseph Fernandez, who manages the Mark Fernandez Copy Trading Fund.
Normally, mutual funds are a long-term investment. Investors will have to invest their money for months or years to avoid withdrawal charges and gain better returns. Whereas copy trading allows traders to move their money between different fund managers/popular investors and stop copying their strategy at any time by simply pressing “STOP COPY”. Although this is not suggested, some copy the trades for a day or even hours only. In most cases, the time period of your investment in a copy trading fund depends on the popular investor’s strategy. Some popular investors, choose to buy and sell stocks for the long-term. You can check on the popular investor’s strategy and bio in eToro. This will allow you to know if they are a short-term or long-term investors.
Risk and Returns
Every investment carries a certain degree of risk. In both mutual funds and copy trading funds, investment risks depend on the underlying assets (the assets that the fund manager or popular investor is holding). Debts instruments have lower risks, stocks are medium to high-risk, cryptocurrency and forex are the riskiest. The level of risk is usually dependent on the investing strategy or theme of the fund manager or popular investor. As one of the most suggested popular investors in the Philippines, Mark Joseph Fernandez Fund focuses on dividend generating stocks that have medium risks and, targets a return of 2% to 10% per quarter. Dividend investors can expect higher returns when compounding dividends are reinvested for a longer time.
Transparency and Reporting
Transparency is important in investing to keep investors updated on the current composition of the fund. A real time view of the portfolio makes it easier to observe and follow the fund’s behaviour and strategy. Unlike mutual funds which usually gives their fund reports every end of the quarter/end of month, copy trading gives users a real time view of the current asset holdings of the copy trading fund with just a click of a button. Simply search for the name of the popular investor in eToro and look up their stats and portfolio composition any time of the day.
The Ultimate Advantage of Copy Trading
One cannot argue that copy trading allows the lowest possible fees in investing. This is because the investor need not pay for the fund management fees that are typically charge by mutual funds. This can usually range from 0.5% to as high as 10% on the gross value of the assets every year. Further mutual funds usually charge entry fees and exit fees.
In copy trading since you basically place your money in a stockbroker, you only pay the usual stockbroker fees. Meaning the fees that you pay is similar to the fees that the person you are copying is paying. On top of that eToro offers an investment insurance that pays up to a million Euro/AUD in case eToro becomes bankrupt which is very unlikely to happen since it is a well reputable stock broker globally. In the Philippines, it is somewhat similar to the usual PDIC insurance that banks give.
Another Key Advantage of Copy Trading: Ability To Invest only in Future Stocks Purchased
Unlike Mutual Funds wherein when you purchase Mutual Funds the stocks you buy are automatically the previous stocks that the fund manager purchased. This can either be a positive or negative advantage to investors. If the stocks are cheaper during the time you purchased the mutual fund it is beneficial to you. But if the previous purchased by the fund manager are already expensive it might not be beneficial to you. Copy trading allows you the option to copy existing stocks (OPEN TRADES) or not copy existing stocks. If you do not copy open trades (existing stocks) you will only purchase the new stocks that your fund manager purchases and not the existing ones.
|MUTUAL FUNDS||eTORO COPY TRADING FUNDS||USUAL STOCKBROKERS|
|Ability to invest only in new stock purchases of fund manager||NO||YES||YES|
|Fund Management Fees||0.5% to 10% per year on gross assets||None||None|
|Entry Fee and Exit Fees||Yes||None||None|
|Brokers fees paid to stockbrokers on every trade||Usually, 0.5% of the assets being traded||Usually, 0.5% of the assets being traded (when selling only)||Usually, 0.5% of the assets being traded (both buying and selling)|
|Investment Insurance should the company become insolvent||None||Up to 1M Euro/AUD in case eToro goes bankrupt||None|
|Skin in the Game (Fund Manager has money in the fund to insure that he will make sure the fund will make money)||Maybe, depends on the fund manager||Yes, owns 100% of the stocks in his own portfolio||Not Applicable|
|Minimum Investment to Start Opening Account||More or less P5,000||500 USD or around P10,000||More or less P5,000|
Skin In The Game
Fund managers in mutual funds, may or may not be invested in the mutual fund they are managing. Popular Investors of Copy Trading Funds are however required to own 100% of the stocks that they buy and sell since the stocks that they buy and sell are being copied by their copy investors. The benefit of having the fund manager or popular investor’s money in the fund aligns the interest of the fund manager and clients because, any amount the fund manager gains is also a gain for the clients. Any loss the fund manager incurs, is also a loss for the clients.
If you choose the right fund manager or popular investor correctly, investors can certainly earn profits through mutual funds or copy trading funds. For example, investors of the Mark Fernandez Fund could have earned 25% already from January 1 2021 to June 30, 2021. But before starting to invest, it is always important to study and find out which approach will suit you.
If you would like to invest in the Mark Fernandez Copy Trading Fund, read more by going to mjtfernandez.com/invest.
Or you can also join our viber group at bit.ly/markfernandezcommunity so you can ask questions to Mark Fernandez and the other copy investors of the fund.