What are mirrored investing services?
Many investors have regarded mutual funds as a good vehicle to achieve their investment objectives such as retirement savings. One major feature of investing in a mutual fund is that the investor has very little freedom or flexibility after he has chosen a particular fund. You may like many aspects of the investing style of a particular fund manager and yet wish for a little bit more such as greater tax efficiency or excluding a particular stock that you dislike from the portfolio. In other words, you have to take the bad parts along with the good ones.
A relatively recent service has been introduced that permits you to mimic the trades of a fund manager that you admire while the flexibility of making any changes that you wish. These investment platforms are called mirrored investing services. You are provided with the ability to study the daily trades of dozens of different fund managers and if you want to stay right on top, you can also request streaming real-time data. If a particular manager that you are following makes a trade in a particular security representing say 2% of his total assets, the service will make a similar trade for you representing the same percentage of your assets. The minimum amount required for a mirrored service is typically less than what is required for a self managed account.
The advantages of mirrored services are as follows:
- You have much more control over your investment than you would in a conventional mutual fund investment
- You have the highest level of instant transparency which you will not get with a mutual fund
- You can get information instantly on how your chosen managers react to market developments rather than wait for weeks to get a report on you mutual fund holdings.
- Most importantly, you get much greater control on your account including the ability to sell any stock at any time. You can also create a list of companies in which you do not wish to invest.
- You can choose to mimic the trades of a wide range of managers with different investment goals and trading styles.
The disadvantages of mirrored investment services are:
- They are relatively new and have yet to establish a credible track record
- Their fees are on the high side when compared to mutual funds. Be prepared to pay up to 2% a year instead of the 1% to 1.5% that you would pay for a mutual fund
- Most of these funds require you to open an account with a brokerage with whom they have a working relationship and you have no choice in the matter
- All you have no protection against the front-running by the mirrored services provider. For instance, he could execute a buying order on his own account before the pressure of buying for his clients drives up the price.
In summary, it would be fair to say that there are investing services offer a number of useful services even though they more expensive than mutual funds. They can, however, expect to take their place in mainstream investing only after they have demonstrated that they can outperform mutual fund investment.