Browsing through my portfolio of equity funds yesterday, looking for opportunities some modest monthly purchases, I quickly realized that we are going through a bullish spell and this might not be the right time to buy. Casting a wider net did not return any products that buck the trend: Finance, Oil, Semi-conductors, Aerospace, Defense, Gold Mines, … are all on an mid-term high. Or did one asset break expectations in a not so obvious way? Let’s take a look at Bitcoin.
Bitcoin has been in my cross hairs for a very long time and the cryptocurrency’s success in 2016 has only added to my fascination. With a return of around 170% between 01/01/2016 and 31/12/2016, what savvy investor wouldn’t at least take a look? Even though there seems to be serious momentum to Bitcoin’s exchange rates, two factors have stopped me time-and-again from investing:
- The purchase is awkward and complicated to say the least
- Holding your Bitcoins requires using online services that I do not know (and yet, not trust), using an app on your cell phone or buying a contraption called a hardware wallet
Immediately after New Years Eve, Bitcoin’s exchange rate plummeted but quickly recovered. In my attempt to understand the dynamics, the reason for the digital currency catching its breath made me realize that Bitcoin might be coming of age and becoming a serious option for investment.
You see, another option for investment I have been exploring are Electronically Traded Funds (ETFs). My personal preference for stock investments goes to Equity Funds, as I do not have the time to monitor share prices continuously, nor am I an expert stock analyst. In my original reasoning, I’m paying the fund’s manager to keep an eye on my investment. Funds are bench-marked against their appropriate stock index. If you choose to invest in a Fund focused on Health Care, the performance of the stock is usually compared MSCI World Health Care index (as shown below). As others have pointed out before, the average performance of most Equity Funds relative to these indexes does not warrant their additional cost (i.e. the salary of the Fund Manager). In some cases it is more profitable to have a computer follow the exact composition of the index, and have it buy/sell the stock that the index is composed of.
It turns out that some of the reasons for Bitcoin’s bounce-back in January 2017 were the rumors that several parties have filed for approval with the American Securities and Exchange Commission (SEC) to launch ETFs based on Bitcoin. If this becomes reality, it would remove major roadblocks to investing and herald a new stage in Bitcoin’s mainstream acceptance.
Let’s keep track of what happens, and decide whether to invest in such an ETF or not.