IncomeShares Challenge: July Returns Snapshot

IncomeShares is running a live investing challenge with four well-known Italian investors. All four of them make YouTube videos about markets and income investing. Each participant opened a real brokerage account at Directa on 15 June with €3,000. They can only buy or sell IncomeShares exchange-traded products (ETPs), but they pick their own holdings from the range. The challenge runs for 12 months, and this is its first performance snapshot.

This article explains how each investor's portfolio performed up to 20 July – and what their decisions earned or cost them.

How the IncomeShares Challenge works

We've partnered with Directa to give investors commission-free purchases on IncomeShares ETPs, subject to certain conditions. Directa is an independent Italian broker, and its platform gives the four participants direct access to IncomeShares ETPs across European exchanges. On Euronext Amsterdam, it charges them no commission at all on IncomeShares purchases of €1,000 or more.

Each participant runs their portfolio in public on their own YouTube channel.

• Gianluca Ranieri Bandini held four of our ETPs on 20 July. Between them they cover equity indices, US Treasuries, and gold.

• Andrea Ferrante publishes as Andrea getquin. He's done the opposite, and put everything into a single ETP.

• Federico La Torella is better known as Il Re dei Dividendi. He's aimed at technology, and he's the only one who has traded actively.

• Lorenzo Boiardi runs Investire in Borsa a caccia di dividendi. He's split his money close to evenly across three of our ETPs.

The figures below come from their monthly Directa statements. That means every number here is a real account balance rather than a simulation. This first period runs from 15 June to 20 July.

On 10 July, all four participants received their first distributions. A distribution is the cash payment an ETP makes to the investors who hold it. IncomeShares ETPs aim to pay one every month.

Dealing costs are worth a word before we explore the numbers. Every purchase outside that Euronext Amsterdam rule carries a fee, and so does every sale. Over the five weeks Gianluca paid nothing at all in commission, while Andrea paid €19 across two trades because he traded on Xetra. Both of them hold exactly the same ETP, under the same ISIN. Where and how you buy an ETP changes what you pay for it.

Note: we've shown everything before Italian withholding tax, so the four investors compare like for like. What each investor pays in tax depends on their own circumstances.

Where the four investors stand after five weeks

The chart below shows what each investor's €3,000 is worth now, as a percentage of what they put in.

Gianluca ended the period slightly ahead, at plus 0.14%. Andrea was down 0.49% and Lorenzo down 0.61%. Federico was the outlier of the four, down 9.39% on a total return basis.

Those numbers combine the income each investor collected with the change in value of their holdings. Splitting the two apart tells you more than the total does on its own.

Income and capital moved in opposite directions

The next chart sets the income each investor earned against the change in value of their holdings.

All four investors collected income, and all four saw their holdings fall in value. Markets mostly went down over the period, and technology sectors like semiconductors fell the hardest. Federico collected the most income, at 4.15% of his starting €3,000, and he also saw the biggest fall at 11.70%. Lorenzo was at the other end of the range, with 1.63% in income against a 2.19% fall.

The income and the fall in value are connected. Our ETPs sell options to other investors, and collect a fee up front for doing so. That fee is called a premium, and we aim to pay it out to investors as monthly income. How big a premium gets depends partly on implied volatility, which is how much the market expects an asset to move. Assets with higher implied volatility have tended to produce larger premiums. Those same assets can also fall further when markets turn, and that can show up in the value of the holding.

So the income figure only tells you half of what happened. The same is true of the price without the income.

What each investor holds

The next chart shows what each investor held on 20 July.

Gianluca had his €3,000 spread across four of our ETPs. The S&P 500 Options ETP made up 51% of his portfolio. EuroStoxx 50 Options and 20+ Year Treasury came in at 19% each, with Gold+ Yield at 10%.

Andrea had all of his money in one ETP, our S&P 500 Options ETP.

Federico held three of our ETPs. The 75/10/15 Multi-Asset ETP was 51% of his portfolio, Semiconductors 33%, and Taiwan Semiconductor 16%.

Lorenzo also held three, split close to evenly. He had 20+ Year Treasury at 35%, Gold+ Yield at 34%, and Magnificent 7 at 32%.

What the four investors bought and sold

Federico was the only one of the four to make a real trade. The other three either sat still or reinvested their July income.

Gianluca bought 19 more shares of our S&P 500 Options ETP on 15 July. He used the cash from the distributions he'd just received.

Andrea did much the same on 14 July. He added 28 shares of that same ETP.

Federico sold 51 of his 103 shares in our Taiwan Semiconductor ETP on 2 July. He sold below the price he'd paid, and moved the money into our 75/10/15 Multi-Asset ETP.

Lorenzo added two more shares of our Gold+ Yield ETP during the period.

One month down, eleven to go. The August snapshot will show whether Federico's rotation pays off – and whether anyone catches Gianluca.

Key Takeaways

• Gianluca finished the five weeks in front, and was the only one above his starting €3,000.

• Federico earned the most income of the four, but also saw the largest fall in his holdings.

• Gianluca and Andrea hold the same ETP, yet Gianluca paid no commission and Andrea paid €19.