eToro has offered investors access to capital-guaranteed upside-only social trading when they invested in the firm’s @Tactical-Edge smart portfolio. The 100% capital guarantee, effectively means investors can’t lose if they hold the position until the 30th June 2026. If the portfolio goes into the red eToro absorbs any losses made by the Tactical BigTech Exposure smart portfolio, and clients get to keep any profits the fund makes on their investment.
The portfolio tends to change each year.
What is the Tactical-Edge smart portfolio?
The Tactical-Edge Capital Guarantee Smart Portfolio covers key sectors like cloud computing, AI, e-commerce, and semiconductors, investing in bonds from leading companies that drive industry futures and the US Government.
The current Tactical BigTech Exposure includes two ETFs managed by iShares:
- iShares $ Treasury Bond 0-1yr UCITS ETF (20.05 of the portfolio)
- iShares iBonds Dec 2026 Term $ Corp UCITS ETF (79.95% of the portfolio)
Previous eToro 100% capital guarantee offers
The last offer was the GainersQTR smart portfolio that copies the investments made by various traders across the eToro platform.
The decision of which traders and trades to follow is made algorithmically by looking at active, high-quality traders with solid track records. A machine learning program then sifts that list of traders to produce a short list of the very best most consistent traders to follow.
GainersQTR has performed very well recently, up 21.33% in 2023 and up 8.76% in 2024 so far, although it did have a bad year in 2022 and was down 8.31%.
It’s important to note though that past performance is absolutely no indication of future results.
What are capital-guaranteed investments?
Capital-guaranteed and upside-only products are nothing new, I helped to structure and sell similar products myself twenty years ago.
eToro doesn’t break down the mechanics behind the new capital-guaranteed investment product, and I am not sure how that complies with the FCA’s new consumer duty rules but that is another conversation.
However, reading between the lines, it looks as though it’s based on a strategy of dynamically hedging the portfolio’s underlying exposure, most likely using a derivatives overlay.
Effectively that would mean the more money that the GainersQTR smart portfolio makes for investors in the scheme, the more hedging of its exposure eToro will need to do.
However, if the GainersQTR smart portfolio doesn’t produce positive returns, then eToro doesn’t need to hedge its exposure as much, or perhaps even at all.
What’s the catch?
Well firstly there is a minimum investment amount of $10,000 and then there is a lockup period that extends to 30th June 2026.
Looking at the terms and conditions associated with the product investors can opt-out by unfollowing the traders the Tactical Edge smart portfolio is tracking, but doing that will negate the capital guarantee.
The other thing to consider is that by investing in this product you are taking on eToro’s counterparty risk. If you are an existing margin trading client of the broker then you are doing that already.
However for new investors that might be an additional consideration, particularly if you invest a sum larger than the UK FSCS insurance limit of £85,000. The upside limit for individual investments in the capital-guaranteed product is $2.0 million.
If you invest in this product you are effectively buying into the wisdom of the crowds in the belief that the leading traders on the eToro platform can continue their positive track record and if they can’t, that others can take their place.
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