Were We Wrong About Bonds?

We’ve said time and again that bonds suck as an investment, and instead have chosen to put the bulk of our respective investment pots into the stock market. With the benefit of hindsight was this a bad idea?

 

We all know that Covid has ravaged stock market investments this year – which have then recovered – and the stock market has since been waiting patiently for more news before it decides what it does next. Meanwhile this year, bond markets have received attention for a strong performance in tough times.

 

If you’re anything like us, you too have probably been ignoring bonds and may be wondering whether you should add some to your portfolio.

 

So, today we’re going to look at bonds – what they are, what we’ve said in the past, a look at their recent performance, reasons why you might want to invest in bonds, how you can invest, and finish off with our latest opinions.

 

What Is A Bond?

Bonds are a popular choice among income-seeking investors and those that want to temper the volatility of the stock market.

 

Companies and governments can raise money by issuing bonds, which are essentially “IOUs”. You lend your money, and at the end of the agreed period you should receive your money back along with regular interest.

 

Companies can use the money to fund projects, pay-down other debts and make acquisitions, while governments will use the money for public spending, on such things as new roads, education, the NHS and so on.

 

We think it’s fair to say that bonds are perceived to be more difficult to understand than shares. There are several factors that all impact on a bond’s return such as inflation, interest rates, the economy and ratings agencies.

 

Bonds also don’t make particularly interesting news stories, so are covered far, far less in the media. Microsoft launching a new Xbox console, or Disney launching a new streaming service are vastly more interesting stories than bond yields falling by a fraction of a percent.

 

If something is boring, then nobody will read about it and so naturally will be less well understood.

 

Bonds 101

We’re not going to drone on about the intricacies of bonds but let’s quickly run through the need-to-know aspects:

  • When bond prices rise, their yields fall, and vice versa

  • Unlike dividends on shares, the bond issuer is obliged to pay the interest coupon, so income is predictable

  • When central bank interest rates rise, bond prices tend to fall, and vice versa.

  • Corporate bonds rank higher in the pecking order than shares if a company goes bust. Therefore, bondholders should receive some or maybe all of their money back.

  • Government bonds issued by some countries such as the US and the UK are seen as “risk-free”, in that the chances of these major economies defaulting are extremely minimal.

What We Previously Said About Bonds

Long-time viewers of this channel will know that we rarely ever mention bonds, and the few times we have we have been critical of their abysmal yields and rock-bottom returns.

 

Although bonds would likely give us lower portfolio volatility, we have said we would rather risk our money in the stock market than accept pitiful bond returns.

 

Prior to the Covid pandemic, UK interest rates were 0.75% and widely believed to be as low as they could possibly go. Therefore, it was reasonable to assume that bonds would only fall in price as global central bank interest rates were slowly increased over time.

 

We now know that things have panned out quite differently, but how has this impacted bond returns, and how does this compare to a reasonable alternative stock market investment?

 

How Have Bonds Performed?

The performance of bonds has not been a straight line in 2020. Prior to the pandemic, bonds underperformed. During the beginning of the pandemic when panic ensued, bonds outperformed hugely; and then there was the pandemic recovery, which saw bonds underperform again.

 

With trillions of dollars of quantitative easing, government intervention and fear in the markets, money has been pouring into safe havens such as bonds. According to a Morningstar survey of UK fund flows, bond funds received £872 million of net new money in August alone.

 

Here we can see the annual returns of bonds and how it compares to a global stocks fund:

We can use the Vanguard Global Bond Index Fund as a way of measuring bond performance overall, which is a particularly good representation as it holds almost 13,000 bonds and manages £5.7bn of assets. The Vanguard FTSE All-World ETF is a good representation of world stocks.

 

2020 looked like it was going to be awful year for stocks but is on track to finish in positive territory. Bonds are set to beat it however, with returns of 4.67% ytd.

 

The table clearly shows that bonds are less volatile over the years but if you had been pre-empting a stock market crash in 2013, 2016, 2017 or 2019 and took harbour in bonds you would have missed huge stock market gains.

 

This relatively small time frame echoes what we know about long term equity returns, which is it is better to ride the waves of volatility in the stock market if you have time to recover from any potential crash.

 

If you need less volatility, then bonds do seem to fit the bill but at the expense of total returns.

 

Why You Might Still Want Bonds In Your Portfolio

#1- Volatility Could Return

Covid is far from over and heading into winter it could get far worse. The huge levels of global government stimulus could be running out of steam, which could cause a sell-off in stocks.

 

There is also a looming US election, and in the UK, there is Brexit to deal with, which seems to be forgotten news right now but is likely to come back with a bang.

 

#2 – Don’t Rule Out Negative Rates

Economies are stagnating and central banks may have no choice but to move onto negative interest rates. This will lead to higher bond prices. More on this later.

 

#3 – Too Much Risk Is Priced In

Some analysts believe that fear of corporate defaults has been overdone and there is room for price increases.

 

The global head of fixed income at Fidelity said, “Many companies will have strong enough balance sheets to survive another six months of local lockdowns.”

 

#4 – Portfolios Need To Be Balanced

2020 has reminded investors why a balanced approach to portfolios is necessary. When dividends are cut and income dries up, bonds can provide much needed income.

 

Also, insurance and pension companies cannot only hold riskier investments because their customers cannot have their retirement funds wiped out. To preserve capital, these companies have no choice but to stick with bonds even knowing it will be a terrible investment for returns.

 

How To Invest In Bonds?

Most retail investors in the UK don’t invest directly in bonds and in fact not many investment platforms will even offer this service. It is still possible to buy individual government and corporate bonds, but we see little reason why anybody would want to do this.

 

Most UK investors will opt for bond funds over direct investing and this is how we would do it. Like funds that invest in stocks, you will have the choice of actively managed funds or passive funds.

 

Actively managed funds cost significantly more and according to Morningstar, “The typical active fixed-income fund manager struggles to beat the fund’s benchmark after fees.” Armed with this knowledge and what we already know about the importance of keeping fees to a minimum, we personally wouldn’t invest in actively managed bond funds.

 

Based on a list in The Investors Chronicle of top bond funds we noted that cost does vary quite substantially but the average seems to be in the range of 0.5% to 0.8%, which is far too high in our view considering the historical returns on bonds are generally quite low.

 

We don’t plan to end the debate between passive and active investing in this video and we’ll leave this for another time, but there is an argument that high-yield ETFs typically avoid smaller bonds for liquidity reasons. Therefore, active managers have numerous opportunities to add value by investing in smaller, less-liquid bonds that offer higher compensation for that illiquidity.

 

Vanguard along with many other index fund providers offer very competitively priced passive bond funds starting from as low as 0.07%, with most costing around 0.12%, which is significantly cheaper than the active alternatives. Other cheap bond fund providers include iShares, Invesco and SPDR, among many others.

 

You’ll be able to buy bond funds and ETFs through any decent investment platform. Freetrade have a ton of bond ETFs available and if you sign up via our link, you’ll bag yourself a free share worth up to £200. You have to go through our link to get the free share and this can be found on the Money Unshackled Offers page here.

 

Why We’re Still Not Investing In Bonds

Yields have been nothing less than a joke in recent years, and since the pandemic they have collapsed even further. Bonds are very expensive and are now often guaranteeing a loss if you hold them to redemption.

 

An investment manager speaking to the Investors Chronicle said – and we paraphrase – they now only use bonds to manage volatility in broadly diversified portfolios, instead of as a source of predictable return.

 

With hindsight, the time to hold bonds was 2020 but this ship has now sailed. But if we had the gift to foresee economic catastrophes, we would also know which stocks would benefit, and these would provide far greater returns than any bond. So with this in mind, a good stock picker would do better picking stocks than panicking and taking shelter with bonds.

 

Having said this, there is still a high probability that central banks such as the Bank of England will resort to negative interest rates sooner or later. This would likely push bond prices upwards, so you could benefit in the short term if you know when to take profits.

 

Some of you might be wondering why we’re not buying bonds if we think the bank base rate is going negative. Quite simply, we both believe that no matter what interest rates are, stocks will always find a way to provide stronger positive returns eventually.

 

We wouldn’t want to miss a bull run in the stock market by trying to time the bond market.

 

If we were investing in bonds, we would be doing so as part of a long-term strategy. As we’re only in our early 30’s we feel that it’s better to risk our money in equities than to settle for likely low returns from bonds.

 

Also, according to Andy (MU Co-founder), he has speculated enough on interest rates by choosing a tracker mortgage on his main home. If rates do fall, he will get the benefit there, and likewise if they rise he will feel the sting.

 

Alternative Interest-Bearing Assets

We do invest a small allocation of around 10% of our portfolios in P2P Lending for regular income, which in many ways is similar to corporate bonds but without fluctuating capital values.

 

Most of the major P2P platforms have temporarily stopped making new loans using retail money and instead are making loans solely using government funds such as the Coronavirus Business Interruption Loans Scheme.  If you are an existing lender you should still hopefully be receiving regular repayments, which far surpass the yield on bonds.

 

Loanpad, which is one of the few platforms still lending new money will be paying 4.0% interest – currently at 4.5%. Ben (MU Co-founder) personally uses Loanpad himself and has been very impressed with how they have handled the Covid situation.

 

In addition to the decent interest on Loanpad, new investors who use the link on the Money Unshackled Offers page will get a £50 bonus if they invest at least £5,000.

 

Do you invest in bonds, and if not, why not? Let us know in the comments section.

Should You Jump Aboard the Clean-Energy Stocks Bull Run?

Clean Energy stocks are well into an established bull market run.

 

It’s a sector with serious momentum behind it: when we recently looked into the most popular funds amongst UK investors, a fund containing only clean energy stocks was in at number 3, wildly ahead of all other industry specific funds, and even ahead of general US S&P 500 funds.

 

Even if you don’t really care about all that green stuff, and just want your portfolio to make you some serious flipping moolah – then clean energy is looking more and more each day like it should be a part of your portfolio too.

 

There are sound reasons to believe that the momentum behind this sector is a long way from over yet, with many wind and solar energy companies very much still at the initial stages of the technology’s potential.

 

And with Western governments lining up behind clean energy and throwing everything but the kitchen sink at it from their taxpayer’s money, you’d be swimming with the tide by allowing your money to tag along for the ride.

 

Should you jump aboard the clean energy bull run? And which stocks have the best outlook? Let’s check it out!

 

Offer time: Free-trading investment platform Stake are giving away a free US stock worth up to $100, to everyone who signs up via the link on the Money Unshackled Offers page. Stake has a huge range of over 3,800 Stocks and ETFs – including the clean energy stocks mentioned in this video!

 

The New Energy

Investors used to get their energy fix from a cup of Texas Tea, but now oil is falling out of favour.

 

The smart money is assumed to be in clean energy, but so few companies are self-sufficient – is it all good feelings and ideology?

 

The overtly dominant position of governments in the West is that clean energy is a good thing, and are very pro subsidising it until it reaches an advanced enough stage to survive in the open market.

 

Only Trump’s America remained opposed.

 

Wind and solar power are assumed to provide unlimited cheap energy, but they are in fact very capital intensive.

 

To make much energy, you need to litter the countryside in very expensive tech; compared to gas power stations, which already exist and for which the gas burned is very cheap to source.

 

The question of whether cost effectiveness takes another 10 years, or 100 years, or never, seems to be largely irrelevant – governments are committed to transitioning away from fossil fuels.

 

Investing For Fundamentals

Don’t worry – we’re not about to suggest you should invest your money based only on what is popular with world leaders at Davos – although it often does help to go with the flow.

 

We also demand good fundamentals from our investments. But when researching the industry, we were reminded how just so few clean energy stocks have sound fundamentals!

 

They’re mostly either loss making, or are propping up revenue by taking on an absolute tonne of debt to buy their assets with.

 

Loss Making Debt Guzzlers

Although clean energy companies are likely to continue receiving a tonne of subsidies over the next decade or so, we like our assets to be productive under their own steam.

 

You can keep a coma victim alive for years on a life-support machine, but remove the machine and they’re done for.

 

Our investments need to be able to stand on their own two feet.

 

The many green stocks which are loss making and heavily indebted, and yet are still valued at billions of dollars, are most at risk of being caught out if subsidies were to dry up.

 

With that in mind, we want to pick stocks with a proven track record. And with clean energy, there is a strong argument to invest at stock level, rather than through an ETF.

 

Back in the early 20th century the invention of the car looked set to change the world too, and it did. But there were more loser stocks in the car industry than winners.

 

Using popular iShares Clean Energy ETF (INRG) as an example, the sector average PE ratio is very high at 32 – probably because so many of the component stocks don’t make any earnings!

 

There are a lot of shaky looking companies in the industry which will get caught up in an ETF.

 

Top Clean Energy Stocks

#1 – Renewable Energy Group (REGI)

In our view, this stock looks the best of the bunch in terms of fundamentals, and (MU co-founder) Ben has just added it to his portfolio. This $2.2bn company has a PE ratio of just 5 – it’s dirt cheap, in fact it’s the second cheapest US listed clean energy stock.

 

On popular stock picking analysis site Stockopedia, it qualifies for 6 screens, which is high praise indeed – a decent stock might normally qualify for 1 or 2.

 

This is saying that 6 tried and tested stock picking methodologies would choose this stock above others – for comparison, this is 1 of only 13 US stocks out of 10,000 to appear on at least 6 screens.

 

So what does it do? REG is a producer of biofuels, which are used mainly to power industrial vehicles like lorry fleets.

 

Asking America to replace its entire fleet of lorries with Tesla trucks would likely bankrupt most businesses.

 

However, just switching the fuel of lorries to a compatible diesel made from plants is a significantly cheaper, easier and therefore a more realistic and likely green solution.

 

Going back to the financials, revenue – which ultimately drives profits – was climbing strongly every year to 2019, but projections for the next 2 years are lower.

 

This is understood to be coronavirus related, with a current reduction in travel of all kinds lowering the demand for fuel.

 

It scores well for overall financial health, but Stockopedia was throwing up a warning on the potential accuracy of the accounts, telling us we should look into this further.

 

On closer inspection, it was because they have a big chunk of profits that exist on paper only, not yet received as cash – but this is normal practise in the sector, and that money is guaranteed.

 

It’s from REG’s main subsidy, a tax credit resulting in around a $1.25bn windfall of government cash, which is recorded in earnings but just hasn’t yet been physically paid by the government. So not a problem.

 

Its liquidity is fantastic, and unlike most of the industry, this green stock has no net debt – instead, it’s sat on a couple hundred million dollars of net cash!

 

The downside? There is no dividend.

 

So you’d be buying this stock solely for expected capital growth in an evolving energy landscape.

 

#2 – Wind Energy

In the US, the Democrats would cover the countryside in wind turbines and solar panels if they were in power, with 500 million new solar panels and 60,000 new wind turbines wanted by 2025.

 

If Joe Biden wins in November 2020, expect this to be the immediate plan. If it’s a Trump win, then the plan simply gets delayed by 4 years. But a splurge on wind power is sure to happen sooner or later, and as investors we intend to be ready.

 

The obvious big boy of the scene is NextEra (NEE) Energy, a $150bn goliath in the wind industry.

 

But its forward looking PE ratio is 125, which makes it ridiculous as an investment, just shy of being the most expensive stock in America.

 

Also, its net debt is through the roof at $45bn dollars, around 10x its expected 2020 profits.

 

Broadwind (BWEN) though is a pretty good dark horse in the race, which produces parts for wind turbines. First, it is a small cap stock at just $75m, tiny compared to NextEra, and so has loads of room for growth.

 

It hasn’t turned a profit recently – but on further digging it is expected to start turning a profit from this year. That would give a PE ratio of around 13 – not bad at all.

 

It doesn’t pay a dividend, which is normal for a stock this small still very much in growth-mode.

 

And its debt is high at $23m – but if profits hit $7m by 2021 as expected, this would be just a 3x debt ratio. Acceptable by any standard.

 

#3 – Silver

Until recently, all silver was good for was sitting in a vault and looking impressively valuable.

 

But now silver has a significant industrial application – not only is it used heavily in the production of electric cars, it is also essential in the production of PhotoVoltaic cells, the building blocks of solar panels.

 

As we’ve just said, when the Democrats are next in power the plan is to build 500 million new solar panels, each one built using silver.

 

The 2020 election aside, over the next couple of decades we’re sure to reach a position from one government or another where solar panels get built in bulk in the deserts and open plains of mid-USA.

 

And when that happens, silver’s price will surely skyrocket.

 

You can invest in physical silver through an ETF, or you can invest in a silver mining stock. The benefit of investing in a commodity producer is that you can get paid dividends – and cash is king.

 

Pan American Silver (PAAS) is a Canadian headquartered stock traded on the Nasdaq which operates out of silver mines in North and Central America.

 

The company has strong revenue growth which hasn’t always translated into strong profits, but its profit projections look promising.

 

Essentially though, the share price of this stock tracks more or less to the silver price – but with a dividend thrown in for good measure.

 

What Happened To Oil?

Oil enthusiasts can take solace that while high PE ratios run riot in the clean energy sector, dirty energy stocks can be snapped up for next to nothing.

 

This is reflected in the current rock bottom oil price, and in the ridiculously low share prices of oil stocks.

 

Exxon Mobil (XOM) has a balance sheet of net assets worth $192bn, but its shares are priced at a market cap of only $144bn.

 

Don’t underestimate Big Oil – they have seen the writing on the wall, and Exxon alone invests $1bn a year into R&D science for new energy technologies.

 

The oil companies that we think of as “dirty energy” today might be the leading hydrogen or fusion energy producers in 20 years’ time. If they don’t invent the winning formula, they’ll buy the company that does!

 

Which energy companies are in your portfolio? Let us know in the comments below!

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How We Make £500+ Monthly With Matched Betting (30 Minutes A Day)

If you’re interested in Match Betting and want a boost at the start, check out our dedicated Matched Betting area after you’ve read this article for Offers and a Video Guide:

Matched Betting Area

If you want to make any extra amount of income per month, from a tenner to £1,000 and upwards, this is possible with matched betting.

Matched betting takes advantage of the free cash offers provided by online gambling companies to tempt you into becoming a loyal customer – but these cunning marketing strategies don’t work on clever matched bettors and instead can be taken advantage of!

Matched betting isn’t gambling. It’s all about the cold, hard, guaranteed cash bonuses. And there are hundreds of such bonuses flooding the market every week.

Anyone with the ability to follow simple step-by-step instructions can still easily qualify for these bonuses; and withdraw them as cash.

We’ve been trying it out ourselves for the last several weeks, and have made the equivalent of £500 a month salaries from it, for a time-commitment of half an hour a day. Oh! Did we mention it was also tax free? Sweet.

The time we devote to a money-making scheme is important, because it needs to be worth the effort.

If you have more time to devote to this, say a couple of hours a day, you could even be making around £1,000 a month (though monthly amounts will not be consistant) – we only scratched the surface of the offers available each week.   

Some people take matched betting to the extremes and claim to have used it to replace their job (though we do not claim that you should quit your job for matched betting!). However, the absolute most that people tend to be able to make is £1,500 a month, as the range of offers soon decrease in size after you’ve picked all the low-hanging fruit.

We think aiming for the £500-£1,000 range is the most efficient use of your time.

Whether you just want a couple of extra hundred quid of pocket money each month, or to build up a major income stream, matched betting can do that for you!

How Matched Betting Works

Later we’ll cover how to keep making big money on an ongoing basis from matched betting, but first we’ll start with what you’ll be doing in the first couple of months – with new account sign-up bonuses.

To entice you to open an account, a bookmaker like Coral will offer you £20 in free bets if you first place a £5 bet on something else.

To ensure that you don’t lose that £5, you will separately also place the opposite bet on something called a betting exchange – we use Betfair, which is the biggest and most popular. The serious matched bettors will use multiple exchanges.

You will typically end up with dozens of bookmaker accounts during your matched betting career, but you can make do with just one main exchange where you place the majority of your opposite bets.

Let’s say you put £5 down within Coral for Man United to beat Chelsea. The opposite bet would be for Man United NOT to beat Chelsea, which includes the possibility of a draw, so we would put a bet on Betfair Exchange as well for Man United NOT to win. 

The exact amount to bet on the exchange will be dictated by a matched betting tool, which we’ll get to soon.

If we win on either the bookie or the exchange, we lose on the other one. The net result would be a small loss of a few pennies, reflecting the bookie’s profit-margin which is built into the odds.

Why would we willingly lose a few pennies, you say? Well, because now, we’re awarded the £20 free bet on Coral!

The £5 bet that we lost about 20p on is called the qualifying bet, which you place in order to “qualify” for the free bet.

Next, you have a free bet which you need to do something with. You can’t withdraw it straight away as cash, but you can guarantee to walk away with most of that money by placing another matched bet.

On Coral, we place a £20 free bet on another team to win, say Arsenal to beat Man City. On Betfair exchange, we place a bet for Arsenal NOT to beat Man City.

Again, whichever result turns out to be true, we lose on either the bookies or the exchange, and win on the other.

The difference now is we were using someone else’s money to place half of our bet – the free bet the bookie gave us. And we can now walk away with our guaranteed winnings.

If we lost on Coral, it doesn’t matter. It means we must have won on Betfair, and that is real cash-in-the-bank profits.

Likewise, if we lost on Betfair, no worries – we’ll have made more from our winnings on Coral, which we can also now withdraw if we choose to.

Overall, you can easily expect to profit around 75% from free bets, turning £20 free bets into £15 real money!

How To Get Started

You’d start out with the new customer account offers, of which there are about 50 currently. To find them all and to make the most money, you’ll need to sign up to a matched betting tutorial site: we’ve been using OddsMonkey and Outplayed.com (Formerly Profit Accumulator), but you only need one.

They collect all offers on the market in one place.

They have written walk through guides for each offer, show the odds for every sporting event with every bookie and exchange, and have calculators built into each event which tell you the amounts to bet.

They have weekly bet clubs worth around £200 a month, and all the daily offers currently on the market at hand for people wanting to make money from matched betting long-term. These tools are pretty much essential and you’d be wasting your time if you don’t use them.

There are free versions of each, but these are very limited, and leave you with a lot of guesswork, and the need to do side-research to fill in the blanks.

We started out with the free version of OddsMonkey but quickly realised that we were wasting our time – we needed to upgrade to Premium to make it worthwhile.

Premium with either provider costs £20 a month, you’re not tied in, and it pays for itself many times over if it helps you make £500+ each month. There are annual packages available too for £150 if you’re going to stick with it.

Being cheap with these tools honestly doesn’t pay off – if you only use the free versions you will spend a lot of time looking for offers and reading through terms and conditions; time you could be spending each day executing a couple of extra offers, which can cover the cost of a monthly subscription in a single transaction! It’s a no brainer.

These services will make you money, but we’ve saved you some too, by getting you sweet discounts on your subscription when you sign up to one of these tools through the offers links in the matched betting area of MoneyUnshackled.com.

What We’ve Done

As mentioned, we wanted to have a good crack at this ourselves so we could tell you guys how to do it, so we’ve been matched betting for the last couple of months using some new-account offers and ongoing daily free bets.

30 mins per day translated into around a £500 tax-free monthly income, and based on the generosity of the ongoing offers, this seems sustainable even after the sign-up bonuses.

While registering new accounts can take up the bulk of that half hour, we found that placing the actual bets is quite quick to do.

When we just focused on Ongoing Offers – which are typically lower value than new account offers – we found we could tick off 2 or 3 in the time it would take to execute 1 new account offer.

We personally don’t have the time to commit to this regularly as we’re building a business. But if circumstances were different – like if we were unemployed, or students at uni, or just had time to kill – we think we could easily have choosen to ramp this up to bring in an extra income big enough to cover our basic bills.

Essential Knowledge For Matched Bettors

Here follows 5 essential concepts you need to be familiar with to be a matched bettor. Don’t worry about the details – the essential matched betting tutorial sites we mentioned earlier will hold your hand through the entire process, and the premium versions have detailed built in guides. 

#1 – Backing And Laying

When you place a matched bet, as we’ve said, you need to bet once on one outcome at the bookies – this is the Back bet; and once on the opposite outcome at the exchange – this is called the Lay bet.

#2 – Odds

If you don’t understand betting odds – 5/1 and 16/7 and the like – it doesn’t matter, because you don’t use these fractions in matched betting.

You’ll be switching the settings from fractional odds to decimal odds.

With decimal odds, the range you will become familiar with is between 1.5 and 9, with smaller numbers meaning a result is more likely.

The odds matter for 3 reasons: (1), qualifying bet terms and conditions usually stipulate that you place a bet with odds of 2 or higher; (2), you generally make more profit on your free bets the higher your odds are; and (3), your liability.

#3 – Your Liability

When you place a Lay bet on the Exchange, you are acting like a bookie.

Think of it like this: when you place a bet with a bookie like Coral, by accepting your bet Coral have a liability to pay you an amount of money if you win.

If the odds were decimal odds of 8, Coral’s liability on your £10 bet would be £70; £10 x 8, minus your tenner back. 

Likewise, when you place a Lay bet on an Exchange, you’re really accepting someone else’s bet, and you need to have enough cash in your exchange account to cover the liability if they win.

We recommend starting out with £200 or more in your Exchange for ease, but you can start out with as little as £50.

Don’t worry too much about the liability though – if your liability on a matched bet is £70 on the exchange, it means you stand to win more than that on the bookie’s site, maybe £80, to give you a £10 profit overall.

#4 – Calculators

Both of the matched betting websites we are members of have calculators built in which tell you exactly the numbers you need to know for each event, such as amounts to bet based on those specific odds.

The maths is too complex to not use a matched betting calculator!

#5 – Ratings

On OddsMonkey and Outplayed.com (Formerly Profit Accumulator), bookies’ odds have ratings. The closer to 100% rating, the more profit you’ll squeeze out of your free bet.

Risk Free Money

We should point out now that matched betting, if followed correctly, removes the gambing risk of relying on one outcome to come true. However, humans are fallible creatures, and always find a way to mess up a good thing!

So there is a risk of losing money with matched betting, and it comes from the risk of human error from not following instructions correctly.

Take your time when you’re learning to do this, and don’t rush: avoid mistakes, make a lot of money, and have fun!

Gubbed Accounts

Bookies aren’t charities, and they have the right to stop giving you free bets if they suspect that’s all you’re interested in. In the lingo, you’ve been gubbed! But the following tips minimise the chance of this happening:

Tip 1: Stick to high profile football matches – teams you recognise the names of.

Normal people don’t bet on the Russian Second Division – but silly matched bettors in the UK do, who are only looking at the numbers.

Tip 2: Avoid ratings with more than 100%, as these are beating the market, and raise red flags.

And, Tip 3: Consider placing a matched bet every so often without any free-bet incentives. This tells the bookies you are not just betting to get their offers. 

Don’t worry too much about being gubbed – there are countless other bookies with offers that come and go all the time.

What A 30-Minute Work Day Looks Like

For your first couple of months, each day you’ll be setting up an account with a new bookie with a qualifying bet on tonight’s football, so you’ll have a free bet reward ready to use tomorrow, and you’ll also be cashing in with the free bet that you earned from yesterday’s qualifying bet.

The reason why it’s good to work a little bit each day, rather than doing loads of offers in one sitting, is because the liability on your exchange will soon stack up with multiple simultaneous open bets.

And as we’ve said, once you’re onto the ongoing offers, your day might involve half an hour scooping up 3 or 4 £5-£10 offers – focusing on the biggest first!

What To Do With Casino Offers

You may notice that online bookies also have casino offers. Some of these involve an element of gambling risk, though some don’t (if followed correctly).

You might take the free chips that are offered, but you should stay away from anything which asks you to gamble. Remember – you’re in this for a steady income; not to bet your house on roulette!

Will you be supplementing your income with a few hundred a month from matched betting? Let us know in the comments below!

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iShares Introduces Game Changing TAX-FREE Synthetic S&P 500 ETF

iShares have just launched a new ETF – and we think it could be a game changer.

 

Some of you will know that certain greedy governments around the world deduct a percentage from dividends known as a withholding tax.

 

Up until now we believed this nasty tax was mostly unavoidable, but we’re now delighted to say we have a solution!

 

iShares have just launched a synthetic replicated S&P 500 ETF costing just 0.07%. It’s called iShares S&P 500 SWAP ETF, ticker I500. On the face of it that doesn’t sound too impressive but bear with us while we explain why this changes everything.

 

This ETF should significantly outperform any physical S&P 500 ETF that you likely hold in your portfolio!

 

Don’t worry if you have no idea what this means as we’ll cover everything you need to know in this article, but you definitely don’t want to miss this as we think this knowledge could save you over £200,000 over a lifetime! This is no exaggeration, and we’ll show you how we calculated this soon.

 

iShares are not the first to launch this type of fund but their involvement in synthetic ETFs lends much needed credibility to this ETF replication structure.

 

In fact, there are plenty of synthetic ETFs available on the London Stock Exchange, but this new launch has led us to reassess everything we thought we once knew about ETFs and investing.

 

We believe this entire facet of investing is misunderstood or in many cases, people are completely oblivious to it because the major players, iShares and Vanguard, were overlooking it.

 

In this article we’re going to look at dividend withholding tax, what a synthetic ETF is, their advantages including how they can boost investment returns, and any associated risks.

 

We will of course finish with what action we’re taking as a result of this.

 

Where We Look For Synthetic ETFs

Synthetic ETFs are more specialised investment products, which may not always be available on the free trading apps.

 

Andy (MU co-founder) personally uses Interactive Investor^, which has amongst the widest range of available investments and there you will be sure to find every London listed ETF you can think of.

 

Dividend Withholding Tax

This tax is one of our most despised because it is often taken without the recipient of the dividend even knowing. Investing in an ISA, which are often paraded as tax free havens will not help you when it comes to dividend withholding tax. ISAs only spare you from the big UK investment taxes.

 

Withholding tax is a tax levied by an overseas government on dividends or income received by non-residents. For example, the US Government charges non-US residents’ withholding tax of 30% on any income received from US investments.

 

Many countries will charge exorbitant withholding taxes and finding the rates by country is not easy.

 

Investors should be wary of this horrid tax and in some cases may want to actively avoid investing in certain countries.

 

UK investors can reduce US withholding tax to 15% by completing the relevant form, and Irish domiciled ETFs have a tax treaty with the US to also pay 15%.

 

Truthfully, let us know down in the comments whether you knew that foreign countries were deducting tax from your dividends. We’d like to see just how well understood this deceptive practice really is.

 

Synthetic ETFs: Previous Misinformed Beliefs

Firstly, let us tell you what our misinformed beliefs were as we suspect that almost everyone has the same perception. We think that most people will either:

 

  1. a) Not even know what a synthetic ETF is, or;
  2. b) Know they use complex derivatives to achieve the returns of an index and therefore think they are very risky.

 

There is a belief that there is little reason to use a synthetic ETF because of the risk when there are similar physical ETFs that will achieve the same returns.

 

We were part of the latter group and when there were alternative physical ETFs, we pretty much had written off synthetic ETFs as unnecessary.

 

This is understandable when you look at past performance tables and see that physical ETFs are often achieving or even bettering the benchmark returns.

 

Take Vanguard’s S&P 500 ETF, ticker VUSA. This is a market leading ETF with over $26 billion of assets under management and is a personal favourite of ours.

 

When we looked at the annual NAV total returns, it beat the benchmark every year, which is remarkable. We’re always told that ETFs can’t beat the market, but we know loads that do (at least against reported benchmarks).

 

Up until now, we believed that the ETFs we were investing in were performing to our expectations by tracking their indexes closely.

 

The Truth About Past Performance

It turns out that despite ETF providers stating that they’re tracking a certain index, the reality is usually very different and hidden away in the small print that only an eagle-eyed investor would ever spot.

 

Collectively we have over a couple of decades of investing experience and we will admit that we have only just learned the truth about the benchmarks as we’ve all been misled.

 

We’re using Vanguard to demonstrate this but the same applies to all the ETF providers that we’ve looked at. Vanguard clearly state that the objective of the fund is to track the performance of the Standard and Poor’s 500 Index.

 

Based on this deception it is reasonable to assume that all the benchmark figures are those of the S&P 500.

 

But the real benchmark turns out to not be the S&P 500 that we are familiar with. We were always under the impression that it was the Total Return of the S&P 500 including reinvested dividends without thieving taxes. How wrong were we?

 

The reality is that it is the Net Total Return, meaning it has had withholding tax deducted. According to S&P Dow Jones Indices, multiple versions of the S&P 500 index are produced:

 

  • the Price Return, which we all know;
  • the Total Return, which includes dividends, and;
  • the Net Total Return, which includes dividends but deducts withholding tax.

 

When evaluating our investments, we don’t want to see performance benchmarked against a figure that has had a sneaky tax deducted because a smart investor can often minimise tax if they at least know about it – like what we’re about to do by using synthetic ETFs.

 

What we’d prefer to see is the real total return of the S&P benchmark and a column inserted showing the bridge between the actual return and the benchmark performance. The difference being explained by the withholding tax taken.

 

The difference between the Total Return and Net Total Return on the S&P 500 is quite shocking. On a 10-year annualised basis it is 0.70% – which translates into a huge cost over the years.

 

People split hairs over the odd 0.01% when comparing investment platforms and fund ongoing charges, but are being completely hoodwinked when it comes to ETF benchmark performance.

 

What Are Synthetic and Physical ETFs

Synthetic ETFs provide exposure to an index by entering into a swap agreement with a counterparty, usually an investment bank, to receive the performance of the index.

 

In other words, they use complex financial derivatives to financially engineer the same return.

 

Conversely, a physical ETF achieves the return of an index by physically holding the underlying index securities. So, a physical S&P 500 ETF will literally hold shares in the companies that make up the index such as Amazon, Apple, Pepsi, Walmart and so on.

 

Pros of Synthetic ETFs

One advantage of synthetic ETFs is that they typically offer a lower tracking error compared to their physically replicated counterparts – although tracking errors are not usually an issue for investments in very liquid stocks found in the S&P 500.

 

But one of the main benefits of synthetic ETFs is their tax advantages.

 

As synthetic ETFs do not actually own the underlying securities, they are not liable for withholding tax, leading to an immediate performance enhancement.

 

The S&P 500 typically pays a dividend yield in the region of 2%. But as 15% of this is instantly lost to the US tax man, this means UK investors are hit with a drag on performance of 30 basis points every year, making your dividend returns around 1.7% instead of 2.0%.

 

This government theft not only exceeds the ongoing cost of the ETF many times over but has a huge negative impact when compounded over the years.

 

£200,000 Boost To Your Wealth

Earlier we said that this new iShares ETF and ones like it could boost your wealth by over £200k and it’s all because of that seemingly tiny 0.30% performance boost from not having to pay withholding tax. Here’s how.

 

We will assume you have an existing investing pot of £30,000, you will add £500 to it monthly, and invest for 40 years, earning 7.7%. This is what we expect the S&P 500 might return yearly after the deduction of the withholding tax. This will give you a final pot of £2.079m.

 

By using a SWAP ETF instead and therefore not paying the withholding tax you would earn 8% annually on average. In this scenario you would have a final pot of £2.273m. That’s an enormous difference of £194k.

 

We’ve even been conservative with those numbers as many investors will be stashing away much more than £500 per month.

 

How Risky Are Synthetic ETFs?

The main risk that comes from Synthetic ETFs is counterparty risk. Counterparty risk is the chance that the swap provider goes belly up and fails to meet their obligations.

 

An investment bank failing might seem unlikely, but it does happen. Let’s not forget the collapse of the seemingly indestructible giant, Lehman Brothers in 2008.

 

According to ETFStrategy.com, the popularity of the synthetic structure declined sharply following the global financial crisis due to concerns over counterparty and liquidity risks.

 

Counterparty risk can be somewhat reduced by using multiple counterparties and this is what iShares have done, with JP Morgan and Citi both being used, with more to be added as the ETF grows.

 

UCITS ETFs, which this is one, restrict an ETF’s exposure to any counterparty to a maximum of 10% of its Net Asset Value.

 

The other 90% of the ETF’s value should be covered by collateral held on its behalf, that would be sold to reimburse investors in the event of a default. FYI, synthetic ETFs generally physically invest in a basket of unrelated assets that act as collateral.

 

In the case of the iShares ETF, collateral will consist solely of non-dividend paying S&P 500 equities, so further reduces the risk as these should be high quality stocks.

 

What Action Are We Taking?

We’ve still got a lot of researching to do but it seems that our original dismissal of synthetic ETFs was misplaced. Our final thoughts:

 

  • Some physical ETFs such as Vanguard’s S&P 500 do consistently beat their index. If this is commonplace, perhaps there is still no need to use a synthetic ETF. We suspect the reason they can do this is partly because apples are being compared with pears, with different tax treatments applied to the physical ETF performance than to the benchmark.

 

  • The existing SWAP based ETFs tracking the S&P 500, such as one from Invesco and the new iShares version, claim to be tracking the S&P 500 Net Total Return index as well, just as a physical ETF would. This doesn’t make any sense based on the fact they don’t pay withholding tax and all our research supports everything we’ve told you above. We’ve reached out to iShares to confirm this and we will let you know in the comments section when they get back to us.

 

Once all the facts are fully nailed down, we will be looking at supplementing our world ETF portfolio with synthetic ETFs!

 

Do you invest in synthetic ETFs and what are your thoughts on returns and risk? Let us know in the comments section.

 

^Thanks to anyone who uses the link, it helps the website by giving us a commission if you sign up, at no extra cost to you.

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How Overpaying Your Mortgage Kills You Financially

Paying off your mortgage early will destroy your finances.

 

If you were raised in an average family you were likely taught the importance of paying down your mortgage as quickly as possible.

 

Your parents probably believed it was the wisest financial advice they could give you.

 

That advice was coming from an era of high interest rates, inaccessibility to investing markets and lack of available information. Today’s world is a very different place, in which it is potentially financial suicide to sign-up to a repayment-heavy 15-year mortgage term.

 

Today we’re laying out the arguments against paying down your mortgage early, the risks involved, and our alternative approach to paying off your house and getting financially free in the process.

 

Nothing here is financial advice and is certainly not for the faint-hearted or the financially illiterate! This is what we’re doing.

 

The Myth Around Shorter Mortgages

Maths teachers up and down the land will tell you that shorter mortgages make the most financial sense.

 

A mortgage is a loan, they’ll tell you, and loans attract interest so long as you hold them. If you hold the loan for fewer years, you will pay less interest overall. Case. Closed.

 

This is why they are still maths teachers; instead of retired, with their feet up, eyeing their investment portfolios.

 

An investor worth their salt would give you a very different lesson.

 

No Risk, No Reward

Investors measure risk against return. They don’t invest for a low return when the risk is high.

 

And it turns out having a shorter mortgage or paying more than the minimum is one of the riskiest things you can do for your finances.

 

One reason for this is that when you make a mortgage payment, that money gets locked away. It’s gone from your accessible funds.

 

Extend this concept into mortgage overpayments, and you find that a lot more of your money gets locked away beyond your reach.

 

The Reward that you get from making a mortgage overpayment is that you get to save around 2% interest.

 

The Risk is that when hard times strike, as they do for all of us at some point, your money is trapped in mortgage jail and there is nothing you can do about it.

 

Repossession Risk Is Higher For Overpayers

Let’s start at the extremes before looking at the more every-day ways in which overpaying can kill your finances. Overpaying now actually raises your risk of repossession in a downturn.

 

If you do the so-called “right thing” and overpay your mortgage – filling your house with equity and your pockets with air – then if the day comes that you lose your job and can’t make the payments anymore you are in a far worse position with the bank.

 

How many people will have lost their jobs due to Covid and are now wishing they hadn’t made over payments on their mortgage?

 

For one thing, you have no spare cash to use in emergencies. The fact that you’ve overpaid your mortgage previously counts for exactly nothing in your favour.

 

And in the eyes of the bank, your house is a very attractive target for repossession.

 

Say the bank owns 50% of the house because you’ve been diligent and overpaid, resulting in 50% of your mortgage being paid off.

 

This means the bank only needs to sell the house for 50% of its initial purchase price to recoup their money. They get paid first, see, and you’d get nothing back.

 

All your hard-saved equity would have gone up in smoke. In a recession when the market isn’t moving, they might be happy to sell at half the initial purchase price for a quick sale.

 

If you find yourself in a recession, unemployed, and with house prices falling like they were during 2009, then the banks will be looking at houses owned by unemployed people (i.e. high risk), and which are also full of equity, because then even in a falling property market the bank can get their money back on these houses through repossession.

 

Remember, the banks are keen to give money to those who don’t need it; and the first to screw you when you’re in desperate need of some.

 

Contrast with someone who still owes 90% on their mortgage and so only has 10% in equity, whose house falls by 30% in a recession, to 70% of its initial purchase price.

 

The bank is less likely to want to repossess and sell this house because they know they’ll lose out.

 

If they’re trying to scrape together some emergency profits mid-recession, they’ll start with the low hanging fruit.

 

An Investor’s Approach To Mortgages

We hate the idea of locking our money away in the bank’s pocket for years, outside of our control. Much better to keep as much money as possible back from the bank, in our own pocket. It’s partially a matter of control – that money is better off protecting us from recessions, than protecting our banks.

 

It’s also a matter of return. We believe we can put that money to work for a better return than the interest saving we’d get by paying down the mortgage early.

 

Let’s look at what happens over a 15-year period of diligently paying down a £200,000 mortgage.

 

The interest on a modern-day mortgage is typically around 2%, which is less than the rate of inflation, typical around 3%, so by making overpayments you are losing money in real terms.

 

By this we mean inflation is eating away at your money’s future buying power at a rate of around 3% a year, while your mortgage interest saving from overpayments is around 2% per year, so a real loss of 1%.

 

Avoiding interest on your mortgage through overpayments is really just like paying into an elaborate savings account, which pays you around 2% interest.

 

Keeping the maths simple, by “doing the right thing”, in 15 year’s time you’d be down by £16,000 at real time value of money.

 

This is what normal middle-class people do, and it’s one amongst many common lost opportunities for financial improvement which keeps them trapped in a job all of their lives.

 

If you play the game with your finances, you can retire early, you could pay off your mortgage in one go at that point as well, and have your feet up watching the world pass by, by the time you’re 40.

 

Being smart with your mortgage payments opens up a big opportunity for you to build an investment portfolio of stocks and shares and other investments, which pay you a big passive income for the rest of your life.

 

‘Investors’ is how we would describe ourselves, if people asked us what it is we do. One way to think of investing is just “moving money around”.

 

Instead of moving your money from your current account to your mortgage account, instead move as much of it as you can to a stocks and shares ISA, whilst only making the minimum repayments on your mortgage.

 

It takes the same amount of effort, except one could cripple you financially, and one can set you financially free.

 

It makes a big difference over that same 15-year period. An 8% stock market return, minus 3% inflation, gives us a 5% real return on average each year.

 

At the end of the 15 years, you would have not paid off the mortgage, but you could have £280,000 in your ISA. You can then either pay off the mortgage by writing a single cheque, and pocket the £80,000 difference… or carry on growing your freedom fund at 5% a year, knowing that you could pay off your mortgage at any time.

 

In reality, you do need to pay something towards your mortgage capital every month unless you are on an interest-only deal, but we’ll show you soon how you can get that money back.

 

Effort-Free Investing

People who pay down their mortgages early tend not to be interested in investing, because they see it as either too risky or too complicated. Let’s quickly address both of these points.

 

#1 – Too Risky

We’ve shown that by overpaying you are guaranteed to lose money.

 

And we’ve said that long term investing can make around 5% real annual returns on average – but how can we know that?

 

First, historical precedent. While stock markets often do go down, like in March 2020, the upwards-periods have always more than compensated for that.

 

The average annual return on America’s main index the S&P500 is 10% since the index opened nearly a century ago in 1926.

 

And second, logic. Stocks are productive companies employing people and capital to make profits. Businesses do not go to the trouble of existing, just to make measly profits of 2% – which is what you can save on a mortgage.

 

#2 – Too Complicated

Investing can be just as easy as making a mortgage overpayment. Open your stocks and shares ISA with a robo investing platform like Nutmeg, Moneyfarm or Wealthify, and all you need to do is set up a monthly direct debit and let them take care of the rest.

 

You will answer a few questions on sign-up about how you want your money to be invested – really simple stuff that anyone can answer – and they will build you a personalized, globally diversified portfolio and manage it for you.

 

Open an account with Nutmeg via the link on the Offers page, and the management fee will be reduced to 0% for the first 6 months – it’s an easy win. We have new customer offers for all 3 of these robo-investors in the Robo Investor section on there.

 

What If Interest Rates Rise?

People are funny about mortgages. They think they are magic in some way and that they must be treated with reverence, but they are just a very low interest loan over an incredibly long-term.

 

People seem to panic about not paying down their mortgages in case interest rates rise in the future. So what if interest rates do rise?

 

We are not advocating spending your would-be-overpayments on frivolous things. We’re saying it’s better to put that money aside to go to work for you in investments.

 

As long as your mortgage allows unlimited overpayments – and you can switch provider if not –  then if interest rates did rise to say, 10% in the future, you could instantly move your money around from the ISA, into the mortgage. Job done.

 

The risk is that your investments may lose value if interest rates suddenly rose significantly.

 

But interest would not rise suddenly – it would happen gradually over many years, and you’d be able to see it climbing long before it approached the 8% average return available on the stock market.

 

Extreme Money Moving – What We’ve Been Doing

With mortgages, we personally are willing to go further than most people – we actively avoid having money in our houses.

 

Andy (MU co-founder) is on a special tracker mortgage meaning he can restructure his deal to withdraw equity at any time.

 

Ben (MU co-founder) has a 35-year mortgage, which is the longest term he could get, meaning his capital repayments are as small as they can be. But as well as this, he has now 3 times withdrawn equity from his house.

 

You can do this when you change mortgage provider, which you can usually do without penalty if you are outside of a fixed term.

 

Many people are on fixed term mortgages of 2, 5 or 10 years, with a variable rate thereafter, even if the total term is for 15, 30, 35 years or so on.

 

The first time, he took out around £30,000 to invest in another rental property.

 

The second time he withdrew around £20,000 to help transform another rental property into a HMO multi-let in order to double the rental profits.

 

And the third time was this year, when he took the opportunity to withdraw £8,000, and invested it in the stock markets during the corona crash of Spring 2020.

 

This would be considered high risk by most people, but Ben has been able to use that money to increase his monthly passive income forever.

 

And with a higher income, you can then buy more assets to increase your passive income further.

 

What could have been sat in a house losing value can instead be put to work to build a future income stream of potentially thousands of pounds a month.

 

Whether you stop overpaying your mortgage, extend your mortgage term, or even contrive to get some money back out of your house, just by moving money around you can be far more financially secure.

 

Are you overpaying your mortgage? How do you balance that with investing? Let us know in the comments below!

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Top 10 Most Popular ETFs

Our favourite investment product is the Exchange Traded Fund, and it is possible to beat the market by investing in these extremely versatile funds if you pick the right ETFs. But which ETFs should you choose?

 

Deciding exactly where to invest can be a difficult task, particularly if you’re trying to beat the market. There’s a lot of forces at play causing certain industries, countries, and asset classes to vastly outperform others.

 

For inspiration we can look at the most popular ETFs bought, and Interactive Investor publish the Top 10 every month. So, in this post we’re going to look at the most popular ETFs traded by UK investors in September 2020.

 

Rather than just reel off a list in rank order, for the purpose of this post we’ve grouped all 10 ETFs into 4 discrete groups, and you can find the full list in rank order at the end of this post.

 

UK ETFs

#1 iShares Core FTSE 100 ETF (ISF) and #2 Vanguard FTSE 100 ETF (VUKE)

The 2 ETFs most frequently bought in September were both FTSE 100 trackers. These are essentially the same fund, albeit from different ETF providers, with both giving investors exposure to the largest 100 listed UK companies.

 

This is a core component of our world portfolio that we frequently talk about, and FTSE 100 trackers are likely to be central to any UK investor’s portfolio.

 

FTSE 100 stocks typically make up about 4-5% of global market capitalisation but as we’re based in the UK, we generally overweight it to perhaps around 15%. Historically, many UK investors will have been fully invested in UK stocks, but this strategy has proven to be disastrous in recent years as other major markets have left the UK in their dust.

 

Of course, large companies tend to have global revenues rather than be dependent on 1 country and FTSE 100 stocks are no different with about 75% of the FSTE 100’s revenue coming from outside the UK.

 

However, with many of the stocks in the FTSE reporting in GBP or being vulnerable to UK political decisions, the FTSE has been far from immune to Brexit jitters and the actions taken by Boris in the fight against coronavirus. Also, the FTSE is crammed full of Oil and Banking stocks, which just so happen to have been terrible investments recently.

 

Both ETFs have a tiny Ongoing Charge (OCF) of just 0.07% and both provide similar returns. The iShares ETF has a year-to-date total return of -17.5% and the Vanguard ETF has returned -17.3%. Looking at 1-year returns can often be misleading but sadly the 3-year returns are similarly depressing with the iShares ETF returning -10.4% and the Vanguard ETF returning -10.3%.

 

Personally, we don’t think it matters which of these 2 ETFs you invest in, as they cost the same, have similar tracking differences and will ultimately have similar returns. We can totally understand why these 2 ETFs are topping the leader board right now, with UK stocks overall looking irresistibly cheap.

 

#5 WisdomTree FTSE 100 3x Daily ETP (3UKL)

I don’t think we’ve ever mentioned leveraged Exchange Traded Products before because they are really intended for those looking to speculate on short term movements of an index and we don’t personally use them because of this. We’re surprised that the Top 5 most popular ETFs includes such a speculative product.

 

They are not meant to be held for longer than 1 day and should only be used by sophisticated investors. If you do intend to use them make sure you understand them.

 

The WisdomTree FTSE 100 3x Daily ETP aims to offer investors three times the movements of the FTSE 100 and achieves this through complex derivatives. This means that if the FTSE 100 goes up by 2% in 1 day, the ETF will provide a return of 6%. However, it also works the other way, making these products very risky.

 

The fact that this is sitting in 5th place suggests that investors are very bullish about the FTSE 100 right now.

 

It’s important to note that daily ETPs rebalance daily and do not track an index over a longer period. So, if the FTSE 100 increased by 5% over a year, the 3xDaily ETP will not return 15%.

 

We can’t explain it fully in this post, so just take our word for it but you can check out this interesting article from Interactive Investor where they explain it very well.

 

#10 – L&G FTSE 100 Super Short Strategy (Daily 2x) ETF (SUK2)

Conversely to the bullish investments just mentioned, it seems that a lot of investors are still keen on shorting the FTSE 100. This ETF is intended to reflect twice the daily percentage change in the level of the FTSE 100 on an inverse basis. This means that if the FTSE 100 goes down by 2% in 1 day, the ETF will provide a positive return of 4%. However, it also works the other way.

 

We have to say that this seems very brave as the FTSE 100 has already had a dire year and we wouldn’t have thought it can fall much further. But who really knows? That’s why we invest for the long term.

 

While we don’t currently hold any short positions, which means to profit from a decline in share prices, we can certainly see the appeal, especially if you believe you can time the market. As stocks tend to rise over time, you really are going against the grain when you invest with these types of products.

 

Energy Sector

#3 – iShares Global Clean Energy ETF (INRG)

This is one of the most surprising ETFs on the list. It first entered the top 10 in August but was even more popular in September. We’re not surprised that it’s popular, but we’re surprised that more people were buying it than investments in the US stock market such as the S&P 500, and other major markets.

 

This ETF tracks the S&P Global Clean Energy Index for a pricey fee of 0.65%. This ETF will give you direct investment in 30 global clean energy companies and to be fair it has been kicking ass in 2020, despite most stocks around the world performing very poorly.

 

This ETF is having a blinder, with a 62% gain this year and a 124% gain in the past 3 years.

 

We can’t say we know much about the underlying stocks in the ETF, but we do know that there is a huge green political movement worldwide, which is no doubt helping these stocks immensely.

 

For instance, Boris has just announced arguably unrealistic plans to power all UK homes with wind by 2030 and other countries will no doubt have similar plans, such as Biden’s clean energy plan in the US. While we think these sorts of plans are ambitious, it cannot be denied that the direction is towards renewable energy and away from dirty energy.

 

However, we still believe oil and gas will be the predominant fuel energy source for years to come. Moreover, this ETF contains many stocks that may be trading at very excessive prices. Many of the companies are loss making and yet are being valued at billions of dollars, driven more by momentum and ideology than by current profitability.

 

Commodities

#4 – iShares Physical Gold ETC (SGLN) and #6 – iShares Physical Silver ETC (SSLN)

It comes as no surprise that both gold and silver make the top 10 in the current climate. They tend to be popular investments in normal times but with so much uncertainty surrounding global markets this year it’s no wonder gold and silver make the list as money has been pouring into precious metals.

 

Both these investments have performed very well in 2020 so far with the gold ETC up 20% and the silver ETC up 30%.

 

Both these Exchange Traded Commodities will give you direct exposure into the metal they track and will be physically held. That means that the metal physically exists and is safely stored in a vault.

 

We both invest the iShares Physical Gold ETC ourselves as it should be a good hedge against economic turmoil and inflation over the long term.

 

US

#7 – Invesco EQQQ NASDAQ-100 ETF (EQQQ), #8 – Vanguard S&P 500 ETF (VUSA) and #9 – WisdomTree S&P 500 VIX Short-Term Futures 2.25x Daily Leveraged ETP (VIXL)

We’re not surprised to see Nasdaq-100 and S&P 500 trackers in the top 10. If anything, we would have expected them to be even more popular.

 

The S&P 500 ETF gets you exposure to 500 large US stocks such as Amazon, Microsoft, Coca-Cola and Johnson and Johnson. It is an integral part of our core portfolios and costs just 0.07%. It has also had an awesome year so far considering the economic climate, and returned 9%.

 

The Nasdaq-100 ETF includes 100 of the largest US and international non-financial securities listed on the NASDAQ stock market, so will have a lot of crossover with the S&P 500. Most notably this ETF includes Tesla but the S&P 500 currently does not.

 

This Nasdaq-100 ETF has had a sensational year, returning 41.2% due to the concentration of tech stocks within the index. Information technology stocks make up 48% of the index and these have smashed all other stocks in 2020, largely thanks to Covid.

 

Unfortunately, this ETF comes in at a pricey 0.30% OCF, which we feel is too high for the investments it holds. We don’t mind paying a premium price on an ETF if it gives exposure to more obscure investments, but these are all massive companies and so should be cheaper.

 

And finally, the S&P 500 VIX ETP provides 2.25 times the daily performance of the S&P 500 VIX Short-Term Futures Index ER.

 

VIX and S&P500 generally move in opposite directions, but the correlation is far from -1. This index measures volatility in the S&P and this particular ETP will amplify those movements by 2.25x. For example, if the index that the ETP is tracking rises by 1% over a day, then the ETP will rise by 2.25%, excluding fees. However, if the index falls by 1% over a day, then the ETP will fall by 2.25%, excluding fees.

 

The ETP is very expensive with an OCF of 0.99% and a Daily Swap Rate of 0.01181%, which will soon add up if you held it for a while.

 

Personally, we would never invest in this as we feel that these types of investments are far too complex and shouldn’t be used by retail investors unless you really know what you’re doing. You can lose a lot of money, fast.

 

The Full Table

As promised below is the full table of the top 10 most popular ETFs traded on Interactive Investor in rank order, with 1-year and 3-year performances.

 

Many of these ETFs won’t be available on free trading apps but can be bought on premium Investing platforms such as Interactive Investor. We get a small commission if you use this link at no additional cost to you, which helps to fund this website. Thanks to anyone that uses it.

 

What are your favourite ETFs? Let us know in the comments section.

 

And as always don’t forget to check out the Money Unshackled Offers page where we bring you thousands of pounds of awesome offers when you sign up to various investing platforms and services. Find the Offers page here.

The US Election Impact On Stocks and ETFs (UK Perspective)

Trump vs Biden. Republicans vs Democrats. The result of the election on 3rd November in the world’s biggest market, America, is sure to have an impact on your investments.

 

In fact, it’s in the top 3 most cited risk factors to global stock valuations, alongside the coronavirus and a tech bubble pop.

 

We got a taste of the market jitters to come last week when President Trump tested positive for Covid-19. The S&P 500 and the Dow both lost 2% per cent, and oil prices also slipped further into the abyss.

 

What the market is hating on here, is uncertainty. Stocks don’t have a party affiliation, they don’t really care who the president is. What they like is stability, and the right market conditions to grow and thrive.

 

Here we’re sketching out an objective view of what November is likely to look like in the stock market under either president, without political bias, and most importantly – how it impacts your money.

 

How Politics Shapes Stock Markets

Politics impacts the stock market in 2 key ways – firstly, it is a headline grabbing source of uncertainty, which the market hates above all else; and secondly, the ideologies of the people in power affect which laws get passed, which either help or hinder companies to prosper and grow profits for you, the shareholder.

 

The ideal market conditions for your stocks and ETFs to grow is under a free market with just the right amount of regulation, and just the right amount of taxation.

 

Too much or too little of either and you run into problems, but a new president usually tries to make sweeping reforms in the opposite direction of their predecessor.

 

How Investors Are Thinking

The vast majority of investors — 93% — expect the result will affect the stock market, according to a recent survey from asset manager Hartford Funds. 84% said this will impact their investing habits.

 

There is a lot of emotion around this election; understandably, given how the culture wars have split the country in two, and this emotion is leaking into the stock market.

 

45% of investors surveyed said they plan to make changes before the election, and 62% indicated they would be waiting to make changes after the fact, once the dust has settled. Who is right?

 

Uncertainty and Volatility

We’ve already seen buckets of volatility in 2020, which has been fantastic for traders, but perhaps more gut wrenching on occasion for long term investors. Here’s what Winter has pencilled in for your portfolios:

 

  • 3rd Nov 2020 – The US Election
  • 1st Jan 2021 – Proper Brexit happens, with either a Deal or No Deal
  • Probably every week to come – a coronavirus development

 

Needless to say, uncertainty is the only thing which is certain. We’ve discussed before how to invest around Covid, and Brexit is a matter mainly for EU and UK stocks.

 

The upcoming battle which will have the largest predictable effects on US stocks is the election.

 

If Trump Wins Again

Major polling outfit FiveThirtyEight were among the only pollsters in 2016 to give Trump decent odds of victory, but even then, they only gave him around a 30% chance.

 

This time around they again have the Democrat candidate as most likely to win, but are still giving Trump around a 1 in 5 chance – which isn’t zero.  And remember how barely any pollsters thought Brexit stood a chance in 2016?

 

If President Trump pulls off a blinder and defies the polls again, the market would probably quite like it. It would mean stability, and more of the same.

 

Even industries that may conceivably fare better under a Biden premiership would at least be able to carry on as before, with no material changes.

 

Small-cap stocks would likely rally on the news. These tend to be the most negatively impacted by market volatility, and even by the anticipation of market volatility.

 

The fossil energy sector is likely to do well – relatively speaking, that is, as it’s doing pretty poorly right now.

 

Trump’s White House is very pro-American oil, while Biden has promised some very green policies sure to upset the oil companies.

 

Big Tech would also be poised to keep doing well under Trump. While the tech giants have been threatened with tighter regulation under the Trump regime, Biden and the Democrats are expected to take a much firmer hand in what they see as bringing Big Tech under control.

 

Tech companies are very capable of growing and innovating if left unhindered, so less regulation is a good thing for the shareholders of these stocks.

 

One thing you can expect under a Trump presidency is a brake on global growth overall. His famous “America First” policy and rhetoric against China is sure to hinder trade between the nations of the East and West.

 

For shareholders of American stocks, the ones poised to perform best under Trump are those with a mostly American presence.

 

Global companies floated in New York will continue to be hindered by the war of words with China.

 

If Biden And The Democrats Win

If Democratic presidential nominee Joe Biden wins, and there is also a Democratic majority in Congress – elections happen there at the same time – then things change… bigly.

 

Rapid and wide-ranging economic reforms happen when a new president enters office, if they are also backed up by their own people in Congress – which is the equivalent of the UK’s Parliament. The elections for Congressmen and women are also happening on November 3rd.

 

Under this scenario, deemed the most likely outcome by the pollsters, the market will probably sell off.

 

Wealth management firm Hightower think this could be by around 4%, mainly in anticipation of Biden’s tax policies, but we wouldn’t be surprised if the sell-off were even higher, given the fear in the markets and other elements in play that cause uncertainty like Covid.

 

Initially, Covid-19 will make it difficult for Biden to ramp up taxes on already-struggling companies. Unless there is a vaccine, we think these policies are likely to be deferred into 2022.

 

But the specter of tax rises will hang over the markets and continue the sense of uncertainty about just when exactly the hit will come.

 

If there is a dip after the election, we will likely buy into it.

 

A result for Biden is a result you can take advantage of. While it is likely to cause your existing stocks to fall in the short term, this isn’t an issue for long term investors.

 

But if we see a big fall on November 3rd, we will be drawing on a chunk of our cash war-chest to buy that fall. We won’t use it all though, as there is still a possibility of bigger dips in the future from Covid.

 

Specific companies expected to do the worst from a Biden victory include pharmaceutical companies and the FAANG stocks – Facebook, Amazon, Apple, Netflix and Alphabet.

 

Big Pharma is viewed with just as much distrust by Biden’s team as Big Tech, with both of these sectors likely to take a hit from increased government regulation.

 

But if there is a Democratic sweep of both the presidency and Congress, sectors like clean energy and industrials could benefit from a new focus on infrastructure.

 

A big part of Biden’s playbook is tax and spend, which includes heavy subsidising of the clean energy industry, with renewable energy stocks like Renewable Energy Group (REGI) set to benefit directly, and some tech companies like Tesla (TSLA) benefitting indirectly from a greater push by government towards battery technologies and so on.

 

That’s not to say that a tax and spend policy is the best way to drive innovation – we generally favour the free market approach over government subsidy.

 

But we’re all-for governments using their resources to help technology to advance – if that technology has a practical economic use.

 

America Selects Their 2 Greatest Fighters

So, of the 330 million citizens of the United States, the 2 most popular were whittled down from the masses, of which the most qualified will become President.

 

At least, we assume this must be how it works! In any case, it’s not just about these 2 champions of the American people.

 

We also have the elections for Congress, which we’ve already alluded to, which are just as important for how the stock market goes over the next 4 years.

 

FiveThirtyEight and most other pollsters have a Democrat win in both houses of Congress as being the most likely outcome, but only just.

 

Congress is currently split between both parties, each in charge of one of the two houses.

 

Stock markets love this, because nothing gets done. Remember Trump’s Wall? It didn’t get built, because there was a divided Congress.

 

For a President to make any serious changes, it needs to be signed off first by the 2 Houses of Congress.

 

And when both houses are stuck shouting at each other, no laws get passed, and the market is free to do what it does best – make money.

 

We had a similar brief period of respite in the UK Property Investing market, during the Hung Parliament of Theresa May.

 

Any new law for Landlords is inevitably a bad one, and our fellow property investors were able to enjoy a year or so without government fiddling.

 

A Biden victory, or even a Trump one, would likely be met by the markets with a shrug of the shoulders, if it coincided with the result of the Congressional election being another split.

 

For major change to come, America needs all 3 ducks in a row – the President, and the 2 Houses of Congress.

 

What Past Elections Tell Us

Even though the stock market has boomed during President Trump’s – a Republican’s – first term, it’s not to say it wouldn’t boom under a president from the Democrat party either.

 

Dating back to 1933, a Democratic president on average presides over a higher U.S. stock market than a Republican one, despite some of the big hitters being Republicans.

 

But if you strip away some outliers, such as the dot com bust, there’s practically zero difference between them in equity returns.

 

According to Hightower, if you’d put $10,000 into the market around any Election Day, 10 years later it would have gained value.

 

In this, history tells us it is wrong to choose not to invest in America just because you don’t like the president. History tells us it’s wise to invest in America long term regardless of the president.

 

How The Market is Already Positioned

Unlike the pollsters, the market is too uncertain about the result of this election, and is proceeding with caution.

 

We’ve seen investment funds taking money out of tech stocks – those most likely to suffer in the short term from a Democrat victory – and increasing their holdings in cash.

 

We’re positioning ourselves by being ready to buy the dip if there is a sweep by the Democrats, and we are not too heavily weighted towards any of the industries most likely to be impacted by either outcome.

 

It may be time to take profits on some winners, if you hold stocks in any of the industries mentioned in this video – unless you’re in it for the long haul.

 

Being undiversified going into this election is a bad idea. Be wary of the sectors most likely to move on either outcome – tech, clean energy, dirty energy, pharma, and infrastructure.

 

But a properly diversified long-term portfolio has nothing to fear from this election!

 

How are you positioning yourself for the election? Let us know in the comments below.

 

You can invest in all of these stocks with Stake – an investment app specialising in US stocks. Stake offers fractional investing too, so you can easily afford to buy highly priced stocks. And Stake are also giving away a free US stock worth up to $100 to everyone who signs up via our link, which can be found on the Money Unshackled Offers page here.

How To Make Money With No Effort

Can you make money with no effort? Yes, you can, and in this video we cover 6 realistic ways to make money with zero effort. If you’re anything like us, you have probably been cruising through life trying to maximise your income per effort input. Basically, trying to scrape by for minimum effort.

Neither of us want to be yacht sailing billionaires because we’re not prepared to put in the work. We do however, want to be millionaires as this is far more achievable and agrees with our work ethic.

That being said, the way to make real amounts of cash are by exerting some effort – so as well as 6 ways to make money for no effort, we’re also talking about ways to massively boost your income by applying just short bursts of effort at the start.

Don’t worry, this isn’t one of those get rich quick articles where if you sign up to our masterclass you’ll be making 30 grand a month – we don’t have anything to sell.

Do you want to make money the lazy way? Let’s check it out!

How To Make Money With Minimal Effort?

#1 – Matched Betting

We have a whole area dedicated to this here, but here’s a quick summary of what matched betting is. First of all, it is not gambling. Matched Betting is a bеtting technique used to profit from the free bets and incentives offered by bookmakers, and it can make you £500 every month for about half an hour a day of effort.

As long as it’s done properly, the element of chance is removed by placing bets both on one outcome and on the opposite outcome of an event. Normally if you placed bets covering all potential outcomes of a result, then you would lose money because the bookmakers obviously structure the odds in their favour.

However, with bookmakers continually trying to entice you to gamble they will flood you with bonus offers, aka free money. Because one half of the money on each bet you make is provided by the bookies in free bets, assuming you follow the process correctly you literally cannot lose.

Matched betting is legal and gambling wins are tax free in the UK, and anyone over 18 with an internet connection can do this. The gambling industry is fully aware of the practise but the profits from other gamblers more than covers any losses, so they haven’t cracked down on it.

#2 – Get a Lodger

No matter where you live there is always some demand for accommodation, especially as renting alone can be far too expensive for many people.

This can easily bring in thousands of pounds a year and in the UK can be done tax free up to £7,500.

The only effort on your part is to find a suitable lodger, but this can be a simple as placing an ad on spareroom.co.uk – and then effortless rental payments will flow in your direction month after month, which Ben (MU Co-founder) can attest to personally, having at one point had a lodger for 18 months.

The downside is having to live with a stranger, at least until you get to know them, which is probably why most people don’t do this, but thousands of pounds of easy money is not to be sniffed at.

#3 – Airbnb

If your home is in a tourist area and you don’t want someone permanently living with you, then an alternative to a lodger would be to occasionally rent out your place on Airbnb. The obvious time to rent it out would be whenever you’re away yourself but you could also go a step further.

Someone we know who regularly uses Airbnb as a tourist said that the owner of the house would go and live with her parents while the house was being used. Airbnb could be a nice little earner for you.

#4 – Pet Sitting

We all love our pets and many people will pay massive amounts of money for somebody to look after them while they’re away on holiday, out of town or even just at work.

A mate of ours used to pay £10 a day per dog for doggie day care while he was at work and others also pay good money for cats, rabbits, you name it! £220 a month is good money for letting a single dog sit around your house while you do other things. Look after a few and you may even have a very lucrative business.

#5 – Investing

The best way to make passive income is by investing. For it to be completely passive you could invest through a robo-investor such as Nutmeg, Wealthify or Moneyfarm. These are great if you have no idea how to invest or you’re not inclined to manage your own portfolio. They charge you next to nothing and do all the work for you.

We’ve got some great introductory offers to many robo-investing platforms on the Money Unshackled Offers page, here, so feel free to check these out.

 

If you do want to manage your own investments, you can still do it semi-passively by choosing your own funds but there is some work involved such as choosing a platform, suitable funds, rebalancing and so on.

Picking individual stocks on the other hand is not passive at all if you’re doing it correctly. We enjoy it but please ignore those that say it’s easy money.

#6 – Rent Out Your Driveway

If you have an unused driveway or if your flat comes with a car parking space, then put it to use. People will pay hundreds of pounds a month to park a car in a city when they go to work. So why not take a piece of the action and make your space available on one of the many parking websites.

And don’t think you have to be living in the city to do this. If you live near an airport, a tourist attraction or even a train station this could be a great money spinner.

100% Passive Income Doesn’t Really Exist

All of these ideas, although relatively passive, will not make you mega rich anytime soon. Investing will eventually, but you want life changing money now.

Work that can be done once and pay you forever is very rare. In practice lots of upkeep will be required and when people talk about passive income there is never enough emphasis on the amount of hard work upfront.

Take YouTube for instance or a blog. How many times have you heard that if you set up a YouTube channel you will have passive income flowing in? We’re sure a very small number of creators do but for most it’s a full-time job – an enjoyable job but a full-time job nonetheless.

Most YouTube videos have a short life span, so is not truly passive even after you’ve shot the clips, but it is scalable, meaning income grows for no additional effort. It sure as hell beats trading time for money earning linear income from a job. If you can get past the initial struggle of no views and no subscribers, you will benefit from scale from that point on.

It’s very important to go through this struggle though. It took us an entire year of struggle to learn the basics but by doing so we cracked the code and now know how to create content that people want to consume.

Make More Money For The Same Work

We have established that lots of money is never going to come fast and easy, but can you get paid more for what you already do?

One way is just to switch employers, and this will almost certainly lead to an instant pay rise but what about knocking out a professional qualification as well? For example, Accountants can be doing the exact same job and even be at the same company but if one is a qualified accountant and the other isn’t, the one with the qualification might be paid £10k or even £20k more.

A short burst of effort to become qualified will reap dividends.

Short Bursts of Effort – Buy To Let Property

Every so often Ben buys a rental property, which takes a lot of up-front effort viewing multiple candidate houses, organising contractors to do renovations, sorting out the gas and electric, council tax, talking to lawyers…

But once that’s all over and the sale is stamped, Ben hands it over to an agent who manages it from that point onwards, sorting out the tenants, any further maintenance, gas certificates and so on.

Each short, one-off burst of energy adds around £300-£400 a month to Ben’s future income – indefinitely.

It’s Good To Be Lazy… Sort Of

The word lazy is used as an insult. Look at all these synonyms – idle, work-shy, inactive, do-nothing, bone idle. All have negative connotations.

And the opposite – active, industrious, and energetic. All positive sounding.

Your boyfriend or girlfriend will probably call you lazy if you haven’t washed up the kitchen pans…or is that just us dodging the chores?

In reality, there’s not a normal person on the planet that doesn’t want to maximise their output based on their input. Businesses live and die by this. It’s called efficiency.

Of course, in terms of your job that often means that the business owner will work you to the bone. Their input – your salary – is fixed, and the business will want to squeeze as much out of you as possible, which is one reason why so many people hate their jobs.

Bill Gates supposedly once said, “I choose a lazy person to do a hard job. Because a lazy person will find an easy way to do it.”

When it comes to the art of making money, there are certain jobs that can be heavily automated.

For example, in Andy’s (MU Co-founder) corporate days when he slaved as a financial analyst, he worked his ass off learning and building financial models, which would fully update at the click of a button.

He did this this so in future he didn’t have to repeat the work because deep down he’s (self-confessed to being) lazy. Essentially, he used short bursts of effort to boost work output and ultimately get pay rises.

When it comes to making money, laziness can be a strength as long as you are inclined to maximise output and your earnings, while doing as little as possible.

Do you know how to make real money with zero effort? If you do, let us know in the comments section!

Gaming Industry & Stocks Set To Level Up

The video games industry is now larger than the movie and music industry combined. It doesn’t get the same attention as those industries, but maybe it should. There are over two billion gamers across the world. That is 26% of the world’s population and it should come as no surprise that all manner of gaming and tech companies are battling it out to gain as much market share as possible.

 

There’s so much going on right now with the imminent release of new consoles, new games, new technologies and new ways to play, that we’re asking the question – should we be investing in the gaming industry?

 

Here we can see the growth of the global video games market according to Statitsta.com. Since this forecast we now know that the market is even bigger than this, largely thanks to Covid.

YouTube Video > > >

With people locked up inside their homes many have found respite by grabbing a controller and immersing themselves into gaming.

 

For investors, this incredible growth is an awesome opportunity, so we’re looking at the future of the gaming industry, how you can invest and profit from the surge in its popularity, and 3 gaming stocks & 1 gaming ETF that we are think are set to level up.

 

The Future of Gaming

#1 – Console Wars

It’s really exciting times right now as we’re about to witness a new console war with the imminent release of Microsoft’s new Xbox console and Sony’s PlayStation 5. Microsoft has said the Xbox Series X will be four times more powerful than its current Xbox One X console and no doubt the PS5 will be equally impressive.

 

According to Sony, the inclusion of a solid-state drive will give the console 100x faster loading speeds compared to a hard drive. With faster load speeds we’re expecting these console improvements to lead to even greater gamer satisfaction and therefore far more spending on games and downloadable content.

 

The release of faster and more powerful consoles has in the past fuelled growth in the video game industry overall, as increased marketing and gaming quality leads to a new generation of players.

 

#2 – Cloud Gaming

Cloud gaming is a new way to play games and according to Mordor Intelligence, a market research company, the emergence of cloud gaming will be driving the global market growth in the industry.

 

Thanks to advances in cloud technology a gamer will be able to play games on a mobile or other device that normally would be far too graphically intensive. Rather than the local device doing all the computational work, this is instead handled by the cloud server, where all the games are stored.

 

This new sector is also seen as a serious competitor for the traditional game market, but we see it as complimentary to console gaming rather than cannibalising it and this is a viewpoint shared by Microsoft. In a post their chief vice president described their new cloud gaming service as, “a vision for game-streaming technology that will complement our console hardware and give gamers more choices in how and where they play.”

 

This type of technology is still very new and will make giant leaps over the next few years but surely by bringing true console-quality gaming to mobile devices we’re on the cusp of a revolutionary change in the gaming industry.

 

Not everyone can afford a gaming console or gaming PC and not everyone wants one but almost everyone on the planet has a mobile phone, which will soon be able to handle the best games the gaming industry has to offer. Even in developing countries everyone has a phone, but not necessarily a console. Cloud gaming could be a gateway into the adoption of gaming across the globe.

 

#3 – Smartphone Gaming

Smartphone gaming has exploded in the past few years. According to Newzoo, a gaming insight company, the mobile gaming market is worth $68.5 billion or 45% of the global games market.

 

We knew that mobile gaming was huge, but this is mind blowing. Interestingly, Apple, who do not even make games, is the fourth-biggest public gaming company in the world due to its operation of the App Store. Apple managed a record $22.2billion in revenue from gaming apps in the App Store during the first half of 2020.

 

What strikes us is just how much money is floating around the mobile gaming industry.

 

We’ve personally have never been particularly keen on mobile games because most of them seem to implement the freemium model, where paying more allows you to advance through the game rather than based on skill alone. However, based on the revenue figures it seems that many gamers are more than happy to pay.

 

The top gross mobile game in July 2020 according to Sensortower.com game is Battlegrounds (PUBG) from Tencent and generated $208 million in July alone. Honor of Kings came in second, which is another Tencent game. The next top grossing game was Monster Strike from Mixi, followed by Pokémon Go from Niantic and Roblox from Roblox Corporation.

 

If you’re interested in investing in mobile gaming our tip to you guys would be to check out what the top games are and then research those companies. Another good source of information is your own kids. What games are they playing and who makes them? Get in early before the rest of the world can see what’s happening.

 

#4- eSports

eSports is competitive and organised gaming. Gaming competitions have long been part of the video game culture, but this was largely between amateurs until the late 2000’s. A lot has changed since then as it has experienced a surge in popularity with participation by professional gamers and events being live streamed.

 

The increasing availability of online streaming media platforms such as YouTube and Twitch have been a driving factor in the growth and promotion of esports competitions. FYI, Alphabet (more commonly known as Google) own YouTube and Amazon owns Twitch in case you were tempted to invest.

 

Industry revenues will rise from $776 million in 2018 to an expected $1.6 billion in 2023. According to Statista.com, the majority of these revenues come from sponsorships and advertising, and the rest from media rights, publisher fees, merchandise and tickets, digital, and streaming.

 

In terms of revenues, Asia and North America represent the two largest eSports markets, with China alone accounting for almost 20% of the market.

 

Gaming Stocks Set To Level Up

If that wasn’t enough to get you excited about the gaming industry let’s take a look at some massive US gaming stocks that could be set to level up.

 

#1 – Take-Two Interactive (TTWO)

Take-Two Interactive Software develops, produces, and markets interactive software specialising in video games. The company creates video games for consoles, handheld systems, personal computers, smart phones, and tablets.

 

The market cap of Take Two is $19bn and revenues continue to climb yearly, surpassing $3bn in 2020. EPS is growing at breakneck speed and could well continue for years to come. The icing on the cake is they have no debt and are in a cash positive position with net cash of $2.3bn.

 

The company owns 2 major publishing labels, Rockstar Games and 2K. Take-Two’s combined portfolio includes franchises such as BioShock, Borderlands, Grand Theft Auto, NBA 2K, and Red Dead among many others.

 

GTA is the third highest selling video game franchise of all time and is practically a guaranteed best seller whenever it releases a new game. GTA V is the best-selling game of the decade in the United States and has consistently sat in the top 20 best-earning titles for 74 consecutive months since release.

 

Moreover, Take Two have a 50% share in professional esports organization NBA 2K League, so could be a great stock if you believe esports is set to skyrocket.

 

#2 – Activision Blizzard (ATVI)

Activision Blizzard is America’s largest video game software company by revenue and combines three main developing and publishing divisions.

 

The company’s Market cap is $63bn, and is seeing revenue growing fast every year with EPS following suit. The operating margins are also very healthy and there is even a very small dividend, which is growing at an annual compound growth rate of 13.1%.

 

They own King Digital, which mostly does mobile games such as Candy Crush Saga. Activision has primarily been focused on console platforms, and Blizzard has been responsible for some of the biggest hits in PC gaming. This company has all major platforms covered.

 

Their major games include Call of Duty, Guitar Hero, Tony Hawk’s, World of Warcraft, and Overwatch among many others. Many of their franchises such as Call of Duty and have also been very popular as eSports.

 

#3 – Electronic Arts (EA)

EA is a gaming juggernaut with a market cap of $38bn. The company develops, publishes, and markets video game software for consoles, personal computers, mobile phones, and tablets.

 

EA develops and publishes games of established franchises including Battlefield, The Sims, Medal of Honor, Star Wars and let’s not forget their EA Sports titles of FIFA, Madden NFL and so many more.

 

Sports games such as FIFA are huge money spinners as they essentially release the same game every year, and yet fans still rush out to buy it. As casual gamers ourselves we would usually wait to buy games until they’re cheaper but even we can’t do this with sports games as you have to have the latest players.

 

Stockopedia are rating this very strongly in both quality and Momentum and the revenue has been growing year after year. It has excellent operating margins as so many software companies do, and like the other 3 stocks we’ve looked at, are sitting on a big pile of cash.

 

VanEck Vectors Video Gaming and eSports UCITS ETF (ESPO)

The 3 stocks we’ve discussed are ones that we think are particularly well placed to take advantage of cloud gaming but if picking individual stocks isn’t your thing, then you could instead opt for the VanEck Vectors Gaming ETF. This ETF is available both in London and in the US and gives you direct access to the 25 largest companies with at least 50% of their revenues from video gaming and eSports.

 

It is globally diversified with big weightings in the US, Japan, China and Taiwan. It has some awesome stocks but as it only it focusses on the companies that generate most of their revenue from gaming, it does miss some huge players, like Microsoft.

 

Arguably, Microsoft are one of biggest gaming companies around and have just agreed to purchase Zenimax, the holding company for a number of great gaming studios for $7.5 billion. Game franchises such as Doom, Fallout and Elder Scrolls will all now fall under the Microsoft umbrella.

 

It’s worth pointing out that you don’t have to make games to be a gaming company. Nvidia who take top spot as the largest holding in the ETF make all the graphics cards for gaming PC’s, and AMD hardware will be present in the upcoming consoles.

 

Gaming stocks have had an awesome year so far with this ETF up an extraordinary 62%. It’s always scary investing after the fact, but we think the gaming industry will do well for years to come.

 

And our final tip – we think the gaming industry is set to benefit from a full-on shift to digital downloads of new games. As the new consoles will be pushing this more than ever before, the gaming companies will have lower distribution costs and customers will be more likely to download in-game items resulting in bumper profits across the industry.

 

You can invest in all of these stocks with Stake – an investment app specialising in US stocks. Stake offers fractional investing too, so you can easily afford to buy highly priced stocks. And Stake are also giving away a free US stock worth up to $100 to everyone who signs up via our link, which can be found on the Money Unshackled Offers page here.

What Investors Think About Covid And The Recovery

What do investors think will happen next with Covid and the stock market, with Winter fast approaching? Investing is as much about human emotion and anticipating the actions of other investors, as it is about picking fundamentally sound stocks, regions or assets.
 
In September, Bank of America surveyed 224 fund managers with $646 billion in assets under management to find out what THEY think is going to happen next in the markets.
 
Today we’re dissecting what these market leading investors think is coming, and how it can help us to invest through a likely turbulent market this Winter.
 

Fundamentally Optimistic

When asked the big question – when is a Covid vaccine going to arrive? – investors are predicting that a vaccine for Covid-19 will be available in the first quarter of 2021, with 37% believing a credible vaccine will be announced by 30 January 2021.
 
Let that sink in for a second. A majority of market plays are being based on the assumption that life will be returning to normal by March next year, and over a third of investors are looking as near-term as January.
 
To us, this is incredibly optimistic to the point of foolishness. But whether you’re an optimist – or a pessimist, like us, who believe a working vaccine is still many months away, if ever – knowing how the market thinks works in your favour. Many stocks will rise or fall depending on the outcome of that question.
 
A vaccine by Spring 2021 means planes are flying, office working resumes, physical shops survive, night-life isn’t curfewed, people keep their jobs and money moves around the banking and housing sectors.
 
No vaccine by Spring 2021 means the opposite of all these things.
 

The World Will Bounce Back

58% of investors say that a new bull market has begun, compared to just 25% in May, and the majority are predicting global growth will rise in the next 12 months.
 
For the first time since February, more investors are saying that the global economy is in an early cycle phase, rather than being in a recession.
 
Early cycle phases follow recessions, and it means that the world economy is starting a climb back to strength.
This may very well be true. The world is a big place, and not everywhere will close down their economy at the first sign of cases rising.
 
While here in the UK our first instinct is to economic shutdown, mass unemployment, and a removal of freedoms, in countries which realise they can’t afford the luxury of a second lockdown, they will allow their economies off the leash instead.
 
In many regions of the world, people will be allowed to continue making their livings and building their countries back to wealth.
 

Cash Jitters

It’s not all sunshine and rainbows though. While investors do on the whole think a recovery is more likely than not, they are not so confident as to put all of their money where their mouth is.
 
Cash levels rose amongst fund managers, up from 4.6% to 4.8%. This doesn’t sound like much, but we’re talking 4.8% on trillions of investable dollars here.
 
The normal range is between 4% – greed; and 5% – fear. 4.8% from 4.6% puts them 20 basis points closer to fear on the scared-ometer. Fund managers are hopeful, but edgy.
 

Rotating Away From Large Growth Stocks

Fund managers are rotating away from large cap growth stocks like the FAANG tech stocks, after the massive rally from March lows.
 
We think investors are turning away from big tech too early – it has a lot of room still to run, despite being at all-time highs, which we think is the sticking point for fund managers.
 
They struggle to justify buying big tech stocks when PE ratios are heading into the high double digits.
 
We’ve covered this plenty before but just to recap, there is a ton of growth opportunity still for all of the big tech companies, especially if you are more pessimistic about the covid situation than the market seems to be right now.
 
More lockdowns mean more opportunity for cyberspace to take over.
 

Tech Is Still There

Despite investors halting their purchases for tech, it is still there in their portfolios as the most popular positions overall.
 
Current investments into Tech are still the most crowded trade area of all time. The tech-heavy Nasdaq has surged 60% since March lows.
 

Value Stocks Are More Popular

Money has been flowing out of growth stocks, into value stocks – but on a targeted basis.
 
Value stocks, which are stocks with a low Price Earnings ratio, are more popular than stocks with higher Price Earnings ratios for the first time since the pandemic started.
 
However, value stocks whose industries are in particular trouble – energy companies and banks – are still being avoided.
 
This means it could be a good time to buy oil and banks, if you are a value investor and believe in their long-term potential. These stocks are being shunned by the market right now.
 
Oil stocks have returned to the lows last seen in March after shooting up over the summer.
 
We still believe the future needs oil – we just don’t need much of it right now while planes are not flying and cars are not commuting. It strikes us that the market is being short-sighted on oil, which is why we’re holding our positions in BP and Shell.

 

Small Caps Up

Fund managers are shunning large caps and turning to small caps, which we’ve been saying for some time now are the end of the market best poised for growth, as we prepare to enter a redesigned economy in 2021.
 
Only 14% of professional investors said they think large caps will outperform small caps, the lowest outlook on large-cap stocks since July 2018. So looking for small caps with strong fundamentals is growing in popularity.
 
There will be a flood of companies going bankrupt and entering the history books before this crisis is over.
 
Investors are picking the future winners from the small caps pool of stocks which will replace them.
 
A relatively undiscovered gem in Ben’s portfolio is Dotdigital (DOTD), a digital marketing platform. It’s a UK small cap tech company, with market cap of £408m, which soared on the news of harsher UK lockdown measures in late September.
 
Based on its fundamentals, it’s a very good bet to be one of the future winners. It’s a high-quality stock with great returns, with a strong track record on EPS and dividend growth.
 
It’s health scores on Stockopedia have it as incredibly safe – backed up by a big pile of cash. Hopefully we won’t be referring to it as a small cap for very long!
 
Start investing without any fees by using the Freetrade app, and you’ll be given a free share on sign-up worth up to £200 – when you use our link on the Offers Page.
 
Always do your you own research but if you are interested in Dotdigital you can find it on Freetrade along with thousands of other stocks and ETFs.
 

Biggest Risks

The biggest risks to the stock market are seen as: (1) a Covid second wave; (2) a tech bubble popping; and (3) the upcoming US election.
 
Obviously a second wave of Covid would cause a high level of disruption. As for a tech bubble, we don’t see that there is one.
 
Yes, all tech companies seem to be highly priced right now, but that is reflecting their future profit-making potential.
 
Some do have silly prices, and some will come to nothing, but a company like Amazon with a PE of 100 probably does have the potential to grow and grow. Did you know it’s only currently in 18 countries?
 
Its logo is on our TV screens, on piles of packages by our front doors, on our music players, our e-book readers, and all over cloud software being adopted by more and more companies every day.
 
As for the US election, this is another potential game changer. If Trump wins, it’s more of the same for the US stock market, which reacted favourably to his tax cuts and has seen 4 years of record growth.
 
If the Democrats get in, it might be worse for US stocks, if only in the sense that if something is already at an all-time high, changing the rules of the game are more likely make it fall. But they may do better with calming the trade wars with China – who knows.
 
But the Democrats are likely to increase taxes and regulations on big companies.
 

Investors Still Love America

Despite dialling down on tech and healthcare, the US is now even more favoured by investors than in preceding months.
 
The Eurozone, emerging markets, and UK are generally less popular, except for some UK value stocks.
 
We think investors need to be careful here. While we agree that the US is home to the world’s best companies, their awesomeness is very much priced in to share prices.
 
The PE ratio of the S&P500 is 24, while the UK’s FTSE 100 is just 15.
 
The UK is being shunned by investors right now, and we ourselves have been critical of the FTSE 100 for being full of dinosaur industries like mining and retail.
 
But it’s wrong to ignore the UK completely. When everyone else is shunning a market, it’s probably time to invest.

 

We’re currently having fun investing in individual UK stocks to get the Best Of British, without the turds.
 
But an arguably equal strategy would be go heavier into FTSE 100 and FTSE 250 ETFs now while prices are so suppressed.
 
Enough companies are being undervalued right now that we think making a small increase to your UK positions could be worthwhile, assuming you’re not already overly exposed.
 
Just be aware that it can take a long time for the market to re-rate stocks.
 
Do you think we’re approaching a crash or a recovery? What are you investing in to turn this to your advantage? Let us know in the comments below!