Cryptocurrency update: Bitcoin eyes new all-time high on ETF boost

Commodities

Bitcoin sets its sights on fresh all-time highs after getting ETF-shaped support this morning.

Cryptocurrency update

Bitcoin bounces as SEC gives crypto ETFs the green light

We spoke on Friday about the US Securities and Exchange Commission not being opposed to the idea of crypto ETFs.

Well, the SEC lived up to its word by okaying the introduction of cryptocurrency exchange traded funds on Friday.

Initially, BTC retreated to about $59,000 on the news, but Monday morning bought better price action. Bitcoin reached over $62,600 – its highest level for over 6 months – before finding a home more around the $61,100 mark.

Bitcoin has had a torrid time since peaking in April 2021. The volatility rollercoaster keeps on rollin’. But with the introduction of ETFs to the digital token trading sphere, the sector has been opened up wider. Can this stabilise prices? Maybe. It’s certainly possible that we’ll see a new all-time for Bitcoin as soon as the first exchange traded fund goes live.

Proponents of digital token ETFs reckon this is a good chance for traders and investors looking to enter crypto land to do so without needing to own any underlying assets. Plus, exchange traded funds by their very nature have to be regulated. That might attract those who are put off by crypto’s almost Wild West vibes.

ProShares Bitcoin ETF to start trading in 3,2,1…

It’s thought that ProShares’ Bitcoin ETF will be the first fund to start trading.

ProShares has said its newest fund will be available for trading on Tuesday.

The ProShares Bitcoin Strategy ETF, which will give exposure to bitcoin futures contracts but not the spot market, will trade under the BITO ticker.

NYSE Arca certified the fund’s approval for listing on Friday afternoon, around the time the SEC was mulling over approving such funds.

Let’s be clear: the SEC hasn’t actually given an explicit, formal declaration of crypto ETF approval. It may never give one. However, it’s clear to see that, with the upcoming launch of ProShares’ fund, that they’re fine.

So, brace for a bit of a deluge of digital token-tracking futures funds soon. Roughly 40 are alleged to be in the approval process.

Why the futures focus? According to SEC Chair Gary Gensler, futures-based products may be able to offer stronger investor and trader protections under current legislation.

As we know, there is little to no regulation in pure token trading right now. It is on the US’ agenda. For now, however, exchange traded funds may present a potentially “safer” option to traders. They are still pegged to crypto token prices though. I would expect to see some of that volatility spill into ETF performance.

Grayscale close to Bitcoin exchange traded fund filing

This week may see another big hitter punching its way into the new Bitcoin ETF frontier.

Reports suggest Greyscale is planning to convert its $38.7bn Bitcoin Trust (GCBT) into an ETF. It could make its application early this week.

This would be an interesting move. Greyscale is the world’s largest digital asset manager and the GCBT is also the largest trust of its kind in the world.

Where Greyscale’s plans differ to, say, ProShares is that the Trust is not linked to derivatives. It is composed of digital BTC tokens. Its ETF would do the same. That might throw up regulatory roadblocks during the approval process.

Based on the fact Greyscale’s proposed ETF would NOT be futures or derivatives based, some analysts believe there’s little chance of it gaining approval.

Once Greyscale makes its filing, authorities have 75-days to review it.

European indices slip after weak Asian handover, Wall St hits new high

Morning Note

Stocks are down in early trade on Tuesday after European markets finished lower yesterday, with the FTSE 100 leading the decliners with a fall of almost 1% to around 7,150. The DAX finished off 0.5% at a whisker below 15,900. They were off around 0.3% and 0.6% respectively this morning before paring losses. Concerns that growth has peaked is worrying investors – today’s BofA European Fund Manager Survey showed just 44% think the European economy will further improve over the next 12 months – the lowest since last June and well down on the 80% last month. Rising covid concerns and inflation worries are the main culprits. Nevertheless, FMs are still bullish on European stocks and think there is still room for the inflation trade to run. It’s mirrored in the Global FMS which shows global growth expectations cut to net 27%, the lowest April 2020 and profit expectations are the weakest since last summer. After peaking at 62% in April, global equity allocation has slipped to 54% though there is ‘no appetite to rotate into bonds’.

 

US stock markets managed to shed any negativity around cyclicals with mega cap tech doing the heavy lifting to take the S&P 500 to a new record, rising 0.3% on the day. The Dow Jones erased an early decline of more than 200pts to finish up by more than 100 for the session. Futures are however pointing to a weaker open after a weak session in Asia, as further tightening of China’s competition rules left tech shares in the doldrums. The Hang Seng declined 1.8%, whilst shares on the mainland dropped around 2%. 

 

ARK’s Innovation ETF declined 2.6% as Michael Burry of Big Short fame disclosed a short position on the fund. Now it makes sense given the kind of momentum plays Cathie Woods has been in. And we know Burry has had a short on Tesla since the start of the year, which is the biggest holding in the ETF. Burry is still mega short Tesla so seems to be doubling down on his bearish momo bet. Scion Asset Management bought 2,355 put contracts and increased his bet against Tesla – 10% holding in the ARKK fund. 

 

Tesla shares fell more than 4% as the company faces a formal government investigation into its Autopilot driving system. In a post Monday, the National Highway Traffic Safety Administration announced it has identified 11 crashes since 2018 involving a Tesla vehicle either on Autopilot or Traffic Aware Cruise Control. The investigation covers the models Y, X, S and 3 from 2014 through to 2021 model years. 

 

Big changes at BHP: Shares popped 8% in London, adding a full 14pts to the FTSE 100, as it announced it’s out of petroleum, into potash and scrapping its dual-listing structure. Performance over the year was very strong as BHP benefitted from a global commodity boom and economic recovery. Profit from operations rose 80% to $25.9 billion, up 80%, while underlying EBITDA hit $37.4 billion at a record margin of 64%. Attributable underlying profit rose to $17bn from $9bn last year. The board also announced a $2 final dividend. Elsewhere on the FTSE, JustEatTakeaway shares rose after it reported revenues rose 52% to €2.6bn in the first six months of 2021, compared with €1.8bn in the first half of 2020. 

 

The Empire state manufacturing index was weak – coming in at 18.3 vs the 29 expected, way down on the record high 43 last month, albeit activity is continuing to expand. The usual inflation warning flashed red as the survey reported that input prices continued to rise sharply, and the pace of selling price increases set another record. The prices received index climbed seven points to 46.0, setting a record. Another growth has peaked, inflation is here to stay type report.

 

Taper talk: The picture is almost complete. Chiming with the views of a number of Fed officials aired over the last fortnight, Boston Fed President Eric Rosengren said it would likely be appropriate to start tapering bond purchases in the autumn, though the timeline for raising rates is still uncertain and dependent on the labour market recovering. It’s increasingly clear there is a broad consensus for the Fed to announce its taper in September (or at Jackson Hole), and to commence in November. Of course, there are dissenters, and some doves may prefer to wait longer. The key to it all is Jay Powell – his town hall event tonight (18:30 BST) will be closely monitored for any signals. Even if there is broad agreement to taper the Fed still faces a question of whether to go early and slow, or later and fast. And as soon as the Fed sets the timeline for tapering the market will swivel its focus to the timing of the first rate hike, which is when we start to see some bond market action again.  The BofA FMS shows 84% expect the Fed to taper this year but lift-off for rates not until 2023 with risks around the Delta variant, asset bubbles and China growing as risks.

 

OPEC+ sees no need to pump more oil into the market now beyond what is already intended despite US calls to open the spigots, according to four OPEC+ sources. Nevertheless, the cartel is increasing output: Platts says OPEC’s 13 members pumped 26.83m bpd in July, up 640k bpd from June. API inventory in focus later today after the EIA said US shale output is on the rise, expected to hit 8.1m bpd in September. WTI (Oct) trades at $66.50 this morning, a little off yesterday’s lows around $65.50, but the bears are still in control. 

Thematic Investing with ETFs

Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.

A look at ETFs and Thematic Investing

What are ETFs?

ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.

Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.

An ETF vs an Index fund

There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.

  • ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
  • Exchange traded funds generally require lower minimum investment
  • ETFs are typically more tax efficient

For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.

Do ETFs pay dividends?

That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.

An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.

Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.

How does thematic investing apply to exchange traded funds?

The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.

By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.

One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.

For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.

A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.

Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:

  • Innovation
  • Fintech innovation
  • Autonomous technologies & robotics
  • Next generation internet
  • Genomic revolution

So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.

“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.

By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.

How popular are thematic ETFs?

Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.

In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.

Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.

There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.

In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:

  • iShares Global Clean Energy ETF (INRG) – 120%
  • WisdomTree Cloud Computing ETF (WCLD) – 92%
  • VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%

Risks of thematic investing with ETFs

As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.

There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.

As ever, due diligence and research are important here. Make sure you do yours before committing any capital.

How to diversify your portfolio for 2021

Equities
Investments

Portfolio diversification is something all successful traders practice. Unsure where to start? Here’s a look at how you can diversify your stocks portfolio this year.

Diversifying your portfolio

What is portfolio diversification?

Essentially, portfolio diversification is about protecting yourself against risk. The concept can also help you improve your risk adjusted returns. Those are how much profit can you potentially make against your inherent risk.

A diverse portfolio contains open positions across a range of instruments and assets. This way, you’re not overly exposed to a single type of risk. Investors and traders use a multi-asset portfolio to balance potential risks, which can help create higher returns in the long run.

Why should you diversify your portfolio?

In an ideal world, all of your trades will turn a profit. Unfortunately, that’s not always the case. If you’ve put all your eggs in one basket, and gone all out on a single asset, you’re opening yourself up to a potential major loss.

This is especially true if you’re trading CFDs. Because these use leverage, you can open a position using a fraction of the total trades value. Great, but while that can multiply your profits, it can heavily multiply your losses too.

By spreading your capital across a wide variety of assets and sectors, you can protect yourself against this. Potential losses from one area of your portfolio that is underperforming can be offset by profits from other sectors.

This is why investors and traders use a multi-asset portfolio to balance potential risks, which can help create higher returns in the long run.

Picking instruments & assets to diversify your portfolio

There is a wealth of different diversified instruments available to traders who want to create a wide-ranging portfolio.

Equities

The most obvious choice for investors are equities, i.e. shares. It’s important to select a number from across different sectors and geographies, so as to create diversification in your shares. By doing so, you can avoid historic pitfalls.

For instance, tech stocks were hammered when the dotcom bubble burst around 2000. Financial stocks were hit hard during the Great Recession of 2008, thanks to the subprime mortgage crisis. Flash forward to 2020, and hospitality and travel stocks have taken a beating due to Covid-19 pandemic induced lockdowns. Investing across a further of stocks in broad number of sectors can help you mitigate losses.

CFDs

CFDs or contracts for difference let you trade shares without owning them. Instead, you’re trading the difference between price points when the underlying asset moves up or down. The same principles that apply to stocks also apply here: trade CFDs across a number of different sectors or asset classes to mitigate against potential losses. It’s diversification 101.

ETFs

ETFs are exchanged traded funds. They are investment instruments that track a group of markets, instantly offering diversification in one package. ETFs can include a variety of assets, including shares, commodities, currencies, and bonds. They are passive instruments, so they mirror the returns of the underlying market and will not outperform it. They can help diversify your portfolio by giving exposure to numerous assets with a single position, potentially lowering risk.

Bonds

Bonds are fixed-income instruments representing a fixed amount of debt. They are most often issued by governments or corporations, paying regular interest payments until the loan the bond is drawn from is repaid. There are several different varieties of bond, so you could potentially create a diverse portfolio of just bonds.

They are generally considered a more secure investment, due to their comparative low risk. Warren Buffet is a big fan. In a 2013 letter to Berkshire Hathaway shareholders, the investment ace instructed his wife to put 10% of his $80bn fortune into government bonds as a secure way of hedging bets against the future.

Commodities

Commodities are bulk tradeable assets. Think products like oil, natural gas, metals, gold, crops, and so on. Rather than straight up buying the asset in question, you can trade futures contracts, i.e. agreements to exchange an asset for a set price on a set date, to get exposure to commodities. ETFs are often used to provide diversification in commodity trading, as they bundle together a group of commodities together, but you can also explore further by investing in companies involved in the production, mining, and selling of companies.

Asset allocation

Another important part of diversifying a portfolio if asset allocation. A good rule of thumb is not to put too much capital into any one specific sector or asset class. Again, this is all about mitigating your risk. If you had 80% of your capital tied up in a single stock, and 20% spread across multiple asset classes, then the potential losses from the single stock may completely outweigh any profits from the remainder of your portfolio. You could thus end up taking a heavy net loss.

It’s all about balance, which the example diverse portfolio below will show.

An example diversified portfolio

David Swenson, the investor in charge of overseeing Yale University in the US’ investments, is a good example to follow. According to the New York Times, David has managed to get 16.3% annualised ROI on his investments over the past 20 years of managing Yale’s endowment, worth around $20bn.

In that 20 years, we’ve seen some tough market conditions. The Great Recession, for example, put massive, massive pressure on financial markets globally. Through diversification, David’s portfolio has been able to weather such storms, and continues to deliver significant returns.

Here’s what David’s diversified portfolio looks like:

  • 30% – US stocks
  • 15% – International stocks from Developed economies
  • 5% – Emerging markets stocks
  • 20% – Real estate funds
  • 15% – Government bonds
  • 15% – Treasury inflation-protected securities

You’ll note no single choice represents an overwhelming section of David’s portfolio. Any underperforming sector’s losses will potentially be covered by the other parts of the portfolio, thus mitigating the risk factor.

How to diversify your portfolio

Step 1: Open your account

Firstly, you’ll need to create an account with Markets.com.

That way you can get access to our trading platforms and instruments.

You can use the Investment Strategy Builder to power your own investment strategy or use one of our ready-made options to invest with a little extra help.

Alternatively, use Marketsx to select and trade thousands of CFDs across commodities, shares, and more diversified instruments.

Step 2: Choose your assets

Remember, variety is the spice of life, and the same is true with portfolio diversification.

Over 2,200 CFDs are available on our platform, covering all the major asset classes.

Think about what you want to achieve, and also your commitments and budget. You may want to diversify your portfolio without investing too much. Consider your risk too. Do you have enough capital to trade comfortably?

With that in mind, consider your assets. Do you like the look of oil futures and gold? What about US technology stocks on the Nasdaq vs FTSE 100 performers from the UK? Geography and sector will all play into your decision making here, but as we’re talking about diversification, it’s an idea to take a broad brush and choose from a range.

Always do your due diligence before investing though.

Step 3: Open your positions

Use our platforms to place your first trade.

Step 4: Monitor your positions

Monitoring and evaluating your diversified portfolio very important if you want your trades and investments to succeed. This is not a one-time thing. You must keep things balanced.

Keep an eye on your investments to ensure you’re not exposing yourself to risk you are uncomfortable with.

You might have personal matters that impact your risk tolerances, such as a change in financial circumstances, or your long-term goals might change. In more extreme cases, the risk profile of your assets might change, i.e. a stock market crash.

It’s also necessary to know when to close a position. Be sure to keep up to date with any changes in market conditions, so that you know when it’s time to close your trade. Once you close one position, it’s a good idea to look at how you will readjust your portfolio.

Investing money for beginners: a handy guide

Investing can be a great way to grow your capital. If you don’t know how to get started, check out our guide on investing money for beginners to find out what you need to know. 

Investing money for beginners 

What is investing? 

You might be asking yourself “how can I invest my money? What even is investing? Where do I begin?”.  

We know investing can be intimidating if you’re a newcomer, so let’s start with the very basics. 

Investing is the act of buying securities with the hope that their value will grow over time. Securities are a mixture of different assets which includes company shares, commodities, index funds, ETFs, and so on. We’ll cover these later in more detail.  

The ultimate goal of investing is to put together a portfolio of assets that will maximise profits over the long term while mitigating risk. 

Please note, that while investing can make you money, you can also lose capital if investments go wrong. It is risky, so please bear that in mind before you begin your investment journey. Only start if you can afford any potential losses. 

Do you need a lot of money to start investing? 

It’s a popular misconception that you need millions in the bank to be a successful investor. This isn’t true. You can start investing for £500 or under. It’s basically up to you how much capital you commit to building your portfolio. The practice is open to everyone. 

Why is investing worth it?

Whether you want to simply make money or tuck your some away for a retirement nest egg, or grow your capital for another reason, investing can be a smart move – provided you actively keep on top of your investments and manage your risks. 

At present, investing may be able to make you more money than by putting your money in a savings account. In the UK, for example, the current base rate, a benchmark rate used by lenders, is 0.1%. Banks use this to set their interest rates on savings accounts. So, at the current 0.1% rate, your annual return on every £100 would be 10p. 

With market interest rates so low and the average dividend yield on a FTSE 100 stock around the 3% mark, it’s safe to suggest that equities have higher chance of giving better returns on investment (ROI), albeit they also come with the risk of falling value. Stock markets around the world have been on strong upward trends over the last century.  

Let’s look at an example. If you had invested £100 into an S&P 500-tracking mutual fund in 1989, and reinvested the dividends, that would have grown into £1785 over 30 years to 2019. The same amount put into a UK savings account across the same period would have grown into £364. Investing in the tracking fund would have created 390% more profit.  

What can you invest in? 

When looking at investing money for beginners, it’s important to see all the different assets available. Here we’ll look at some of the most common options available to novices and seasoned pros alike.  

Stocks for beginners 

Stocks are probably the most well-known asset class. When buying a company’s shares or stock of a company, you are buying a small part of that company. That means you are now officially a shareholder. You are then entitled to capital appreciation and dividends. 

Dividends are a portion of a company’s profit paid back to investors. They’re basically a reward for keeping faith and capital invested in a business. Because they offer more pay back on top of capital appreciation, i.e. stocks rising in value, dividend stocks are often popular with investors.  

Not every company pays dividends. Sometimes they can’t afford to. Others may prefer to reinvest profits back into the business.   

Stocks for beginners can be intimidating. How do you know which to choose and which to avoid? We advise undertaking careful research when picking stocks and shares to add to your portfolio. Be aware that share prices can go down as well as up. Unexpected events outside your control can affect company performance, and thus their share price. 

Diversification can help lower your risk, but we’ll cover that later. 

Bonds 

Did you know the first ever official government bonds were issued by the Bank of England in 1693 to raise money to fund to the Nine Years War? Bonds have been around for centuries and are essentially loans given by governments or businesses to raise funds. 

Investors who buy bonds get a fixed-interest rate. This is paid either monthly or quarterly for the duration of the loan. Investors receive money back at the end of the loan period, which typically ranges from three months to 20 years. 

Because bonds sit higher in the capital structure than stocks, bondholders get paid first. That usually means bonds are a safer investment than shares. However, because this is still a loan-based investment, there is a risk the issuer, i.e. the company or government, may fail to pay back at the end of the loan period.  

It’s important to look at a bond’s risk status before adding it to your portfolio. These can be found through credit rating companies. A bond with a rating of A or above would be considered a good investment and is likely to offer inflation-beating ROI. 

Commodities 

Commodities are tangible assets. There are plenty of commodities out there, with the most common being crops and agricultural products like soybeans, oil & gas, metals, and gold. Commodities tend to be listed on special exchanges. They can also be very expensive. An oil futures contract, for example, would cover a thousand barrels of oil. With the current oil price of $61 for a barrel of WTI, you’d be paying $61,000 for a futures contract. Not something we’d recommend when discussing investing for beginners. 

Because of the price and complexity involved, novice investors should avoid physically buying commodities. Instead, you can get exposure to them in different ways. You might want to buy stocks of companies involved in commodities production, like Esso or Chevron for oil, for instance. Groups of commodities are also bundled together in some exchange traded funds (ETFs).  

ETFs 

ETFs are made up of a group of assets, such as stocks from companies working in related sectors, commodities, bonds, or a mixture of different asset classes. The assets inside an exchange traded fund help track the performance of the fund’s underlying market as closely as possible.   

By investing in an ETF, you can gain exposure to an entire sector with a single trade, instead of investing in individual stocks. Some contain thousands of assets, whereas others are much smaller and more focussed.   

ETFs are listed on exchanges unlike other funds.  

Exchange traded funds are great for keeping up with trends. For instance, the ARK series of funds group together technological pioneers in various sectors like healthcare, disruptive technologies, fintech, and automation. 

Planning your investment strategy 

An important tip for investing money for beginners is to think carefully about your goals. Instead of asking yourself “how do I invest my money?” ask yourself some of these questions below: 

  • What do you hope to achieve with investing?  
  • Where do your interests lie?  
  • Which assets interest you? 
  • How much are you willing to invest?  
  • How much can you afford to lose? 

It is recommended when investing in the stock market to hold onto assets for at least five years for to benefit from any significant ROI. 

Our Investment Strategy Builder is designed to help put together a tailored portfolio that works for you. If you’re unsure about starting your journey on your own, feel free to reach out to us and start using our Builder. We may be able to help you reach your goals. 

Investment portfolio diversification 

We often say, when picking stocks for beginners, that diversification is a good idea. Many of the most successful portfolios are comprised of lots of different asset classes. 

Portfolio diversification is all about improving risk-adjusted returns, or how much profit you can potentially make versus how much risk you take.  

A diverse portfolio contains open positions across a range of instruments and assets. This way, you’re not overly exposed to a single type of risk. Investors use multi-asset portfolios to balance potential risks, which can help create higher returns in the long run. 

David Swenson, the investor in charge of overseeing Yale University in the US’ investments, is a good example to follow. According to the New York Times, David has managed to get 16.3% annualised ROI on his investments over the past 20 years of managing Yale’s endowment, worth around $20bn. Here’s what his portfolio looks like: 

  • 30% – US stocks 
  • 15% – International stocks from Developed economies 
  • 5% – Emerging markets stocks 
  • 20% – Real estate funds 
  • 15% – Government bonds 
  • 15% – Treasury inflation-protected securities 

No single choice represents an overwhelming section of David’s portfolio. Any underperforming sector’s losses will potentially be covered by the other parts of the portfolio, thus mitigating the risk factor. 

Investing money for beginners: A final word on risk 

We hope this guide to investing for beginners has been helpful, but we have to stress the potential risks once again. Your money can go up, but it can also go down. Diversify your portfolio, monitor your investments, and do everything you can to mitigate risks if you want to be a successful investor.  

Stick or twist? Markets pin hopes on Fed chair Powell

Morning Note

Jay Powell, chairman of the Federal Reserve, speaks today at the WSJ’s Jobs Summit. We know the Fed’s policy on jobs already; what the market cares about is the central bank’s response to volatility in the bond market. This will be the last time we hear from Powell before the blackout period for Fed speakers ahead of the March 16-17th meeting.  

 

One option is for the Fed to embark on a third edition of Operation Twist, a policy that was last attempted in the wake of the last crisis. Twist simply refers to selling shorter dated government debt whilst simultaneously buying the same amount of longer-dated maturities. It attempts to control the yield curve by flattening it out – or ‘twisting’ it. It has the advantage of allowing the Fed to get a grip on both ends of the curve whilst not expanding its balance sheet. With the Fed committing to keeping short-term rates at zero for at least another couple of years, the effect on short-term rates should be small. Yesterday Philadelphia Federal Reserve president Patrick Harker stressed that rates won’t be rising in 2022, and that yield curve control is a tool in the Fed’s armoury. Lael Brainard hinted two days ago that the Fed is starting to pay attention to bond market volatility.

 

For the Fed it’s time to stick or twist. We know the RBA has started to blink, and ECB policymakers have been talking up how they won’t tolerate higher yields, albeit the messages have been a little mixed of late. The Fed has carried out Twist twice before – once in 1961 to strengthen the dollar, and again in 2011 during the sovereign debt crisis in Europe when rates were already at zero. The question is whether the Fed worries about the market stresses we are seeing, or whether it thinks the rise in yields is more about good economic news. The problem it has and has had for many years is that we are in world hooked on ultra-low rates so any move up reveals skeletons. 

 

Tech stocks are leading broader markets lower as a sell-off in government bonds picked up again. The yield on the 10-year US Treasury note rose to nearly 1.5% again and seems destined to nudge its way higher. US 5-year break even inflation expectations have risen to 250 bps, the highest since mid-2008. Yesterday the Nasdaq 100 cracked its 50-day moving average to close at 12,683, its weakest since the start of January. It’s now down for 2021 and is about 10% off its recent all-time high. The S&P 500 closed on a key trendline support at its 50-day SMA. It looks like it could be the moment for a crack – Powell could be make or break today. Tesla shares are down over 25% from their peaks. Cathie Wood’s main fund, the ARKK ETF, has shed 20% from its February high as the likes of Square, Zillow and Pinterest all tumbled in the region of 8%. Rocket Companies, which had become the next meme stock darling, fell out of orbit and crashed over 32% to $28.

 

After a decent day on Wednesday, European bourses took the cue from the decline on Wall Street that preceded a soft session in Asia as shares in Tokyo and Hong Kong both fell over 2%.  The FTSE 100 declined around three-quarters of a percent in the first hour of trade

 

Deliveroo has confirmed it will list in London and retain a dual class share structure. The timing is noteworthy since it comes a day after the Hill review. Deliveroo won’t be eligible for a premium listing – and the inclusion on FTSE indices that goes with it – but it soon will be.  

 

The review, which the chancellor endorsed in the Budget, calls for companies with dual class share structures to be able list in the premium listing segment, with some caveats to help protect investors, e.g. the dual class structure would be permitted for a maximum of 5 years and voting rights would be capped at a ratio of 20:1. It will also see the free float requirement lowered to 15% of available shares from the current 25%, and it will create a much easier regime for SPACs – blank cheque companies that are created with the aim of acquiring another business. Now the SPAC craze in the US may not be something we really want to emulate.  As Hill states, “listing on the premium listing segment of the FCA’s Official List has historically been globally recognised as a mark of quality for companies”, which begs the question of the merits of ‘watering down’ ‘the rules.

 

But the principle of evolving the listings rules for today’s markets, today’s technology, today’s investors, and the reality of Brexit, do make sense. For example, Hill notes that “it would be helpful if the FCA was also charged with the duty of taking expressly into account the UK’s overall attractiveness as a place to do business”, as happens in other countries. It also makes recommendations to consider how technology can be used to improve retail investor involvement in corporate actions. These would clearly be positives.

 

Tech firms may be attracted to London as a result of the changes. Between 2015 and 2020, London accounted for only 5% of IPOs globally, in large down to the appeal of Asia and New York for tech firms. But equally it’s about the depth of the market and multiples – are we really able to raise the kind of investment into tech start-ups from London that US bankers can achieve for Silicon Valley?  

 

Elsewhere, OPEC failed to reach agreement yesterday and reconvene today. Chatter of OPEC and allies rolling over cuts has helped support prices after touching the weakest since mid Feb. Crude oil inventories rose by over 21m barrels, the most in nearly 40 years as the weather in southern US has shut in refineries. The build came amid a 13.6m draw in gasoline stocks, which was the largest since 1990. and a 9.7m draw in distillate stocks. 

 

Finally, some good news: JD Wetherspoon will open 394 pubs on April 12th for outside service in gardens and terraces. Opening hours are 9am-9pm. I expect demand will be high. Shares nudged higher after a solid gain following yesterday’s Budget announcement, which provided more business relief and support for hospitality.

 

What are ETFs and how to invest in them

New to trading? You might be asking yourself “what are ETFs”? Here, we take a look at these financial products to give you some idea of how they work, and how they might fit into an investment or trading strategy. 

What are ETFS? 

Breaking down ETFs 

ETF stands for Exchange Traded Fund. They are a form of investment that combine the features of funds and equities. 

ETFs are like other types of fund in that they are made up of a group of assets. These might be shares from a certain sector, commodities, bonds, or a mixture of different asset classes. The assets inside an exchange traded fund help track the performance of the fund’s underlying market as closely as possible. 

Unlike other funds, exchange traded funds are listed on exchanges as their name suggests. 

Some ETFs contain thousands of stocks; others not so much. But, by investing in an ETF, you can gain exposure to an entire sector with a single trade, instead of investing in individual stocks. For example, the ARK ETF is gathering together companies related to space travel and exploration.  

Oil ETFs, for example, will likely contain oil producers, but they can also include companies involved in other aspects of oil, such as oilfield service providers, equipment manufacturers, transportation firms and so on. Of course, oil ETFs may also include different types of oil assets, like WTI or Brent crude oil futures, together in a single fund. 

Benefits of exchange traded funds 

Investors use ETFs for numerous reasons as they do offer some key investment benefits. 

  • Transparency  The assets inside an exchange traded fund are available to see, so you’re not closed off from what you’re investing in. All of them are publicly traded assets available on exchanges. You know what you’re getting in an ETF. Their prices are displayed too via exchanges, making them very accessible. 
  • Diversity – Successful investors diversify their portfolios to protect against risk. ETF shares allow them to hedge against negative movements in single sectors or markets, as this type of instrument offers access to multiple markets in a single trade. 
  • Variety – The variety of options available for ETF options is nearly as diverse as the number of individual stocks available on exchanges – ideal for diversification. 

Types of ETF 

Here is a list of the most commonly occurring exchange traded funds available for investors 

  • Commodity ETFs – These group together different commodities, with popular funds including oil ETFs, gold, and other metals. 
  • Currency ETFs – Used by forex investors to invest in a variety of currencies such as USD, EUR, or GBP. 
  • Industry ETFs – Like the aforementioned ARK Space ETF, these group together stocks in a specific industry such as tech, banking, or oil & gas. They may take a wider view of their industry, representing companies working across all sectors, like tech manufacturers, component suppliers, technology retailers, and so on. 
  • Bond ETFs – These include government bonds, corporate bonds, and US municipal bonds, covering state and local bonds. 
  • Inverse ETFs  An inverse exchange traded fund attempts to earn gains from stock declines by shorting stocks (selling stocks, expecting a decline in price, and purchasing the stock again at a lower price). 

How to invest in ETFs 

Currently, there are over 70 different exchange traded funds to choose from on our Marketstrading platform. We’ve laid how some key steps below on how to invest in ETFs.  

  • Choose your area of interest – What are you looking to invest in? Have any markets caught your eye? Maybe you want to capitalise on the recent cryptocurrency boom, or invest in renewable energy? Set out which sectors you wish to invest in. 
  • Trading or investing – Are looking to trade or invest in ETFs? There is a key difference here. Investing is where you would buy into the fund, assigning what level of capital you want to invest in each of the fund’s assets. Trading would mean you do not own any of the underlying assets in the fund. Instead, you would be trading on underlying price movements, like you would a stock CFD. Trading is done via Marketsx platform. 
  • Set your budget – Trading and investing contains inherent risks. While there is substantial potential to make profits, you could also make substantial losses too. Only set an investment budget you are comfortable with. Never commit any capital you cannot afford to lose. You can also add stops and limits to your Marketsor Share Dealing account. 
  • Open & monitor your positions – Once you’ve decided, you’re ready to open your positions. Be sure to monitor your ETFs for price movements and so on, to mitigate your risk and avoid any losses. 

Remember: trading and investing in ETFs, like any financial product, is risky. You can lose money. Please be ensure you know of all the risks and mitigate them accordingly when investing or trading in exchange traded funds. 

Incorporating ETFs into you Investment Strategy

Adding ETFs to your existing investment strategy can help diversify your portfolio and give you access to markets you may not have considered before. Here’s a look at what ETFs are and how to use them. 

Investing in ETFs 

What are ETFs? 

ETF is short for exchange traded funds. They combine the features of funds and equities into one instrument. Like other investment funds, they group together various different assets, such as stocks or commodities. This helps the ETF track the value of its underlying market as closely as possible. 

For instance, there are ETFs that track the FTSE 100, containing constituents of that index proportional to the FTSE’s price. Other exchange traded funds may group together companies working in certain sectors, like lithium producers, or follow an asset like gold. 

Trading ETFs works similarly to how commodities or shares are traded in that they are sold via exchanges. Each fund is split up into units which you can buy or sell. This way, you can get exposure to a whole sector by buying or trading a single unit of this instrument. 

Why add ETFs to your investment strategy? 

There are lots of reasons why institutional investors put their money into exchange traded funds. 

  • Diversity – Portfolio diversification is used by successful investors to protect against risk. ETF shares allow them to hedge against negative movements in single sectors or markets. This is because this type of instrument offers access to multiple markets in a single trade. They can also be used to trade multiple asset classes, such as equities, commodities, and bonds. 
  • Transparency – Inside ETFs, you can find all the assets it holds, giving you good visibility to your exposure. Additionally, because they are traded like shares on exchanges, they are more easily accessible and tradeable than other types of fund. 
  • Variety – As mentioned above, exchange traded funds offer just as much variety as stocks and other asset classes. They can also be used to employ any number of different investment strategies inline with individual investment goals, such as increasing capital, portfolio hedging, or looking for new investment opportunities. 

Choosing the right ETF 

Here are some considerations to take into account when adding ETFs to your portfolio or investment strategy. 

  • Benchmark index – With hundreds of thousands of options available, you should select a benchmark index that suits your trading style, interests and overall strategy. For instance, if you think renewable energy is worth investing, you may select a renewables ETF full of green energy stocks. 
  • Fund size – Some funds will naturally be larger than others. Larger funds tend to benefit from economies of scale, cutting fees and saving investors funds in the long run. They often have better liquidity too. Larger liquidity often means better spreads, lowering transaction costs. 
  • Fund structure – There are two main types of ETF available. Physically replicated ETFs use assets to track their index, while synthetically replicated ETFs use derivatives. Each of these types of ETF has different features and benefits that you should consider before buying. Physical replication offers greater transparency into the fund’s assets and is generally considered the less risky option. Conversely, some markets make physical replication either hugely inefficient or just impossible, so synthetic replication is used here. 

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • 1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under licence no. 092/08 and FSCA under licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover** 

Products

  • CFD
  • Strategy Builder

Markets.com, operated by Finalto (BVI) Ltd by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • £1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by Finalto Trading Ltd. Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover**

Products

  • CFD

Markets.com, operated by Finalto (Australia) Pty Ltd Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

**Terms & conditions apply. Click here to read full policy.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir

Are you lost?

We’ve noticed you’re on the site. As you are connecting from a location in the you should therefore consider re-entering , which is subject to the product intervention measures. Whilst you’re free to browse here on your own exclusive initiative, viewing the site for your country will display the corresponding regulatory information and relevant protections of the company you choose. Would you like to be redirected to ?