Hedgeable is one of the growing number of robo-advisors on the market. But it might be better to think of Hedgeable as a robo-advisor on steroids, or at least a robo-advisor for a more sophisticated investor. They use an investment format similar to other robo-advisors, but with a lot more options.
What Is Hedgeable?
Hedgeable is a digital asset management firm that is democratizing sophisticated investing. That’s a fancy way of saying they are bringing the techniques of hedge funds down to the less well-heeled masses.
This means virtually anyone can take advantage of insider investment “secrets” that were formerly available only to the wealthy.
Hedgeable began in 2009, at the tail end of the infamous financial meltdown that saw the Dow Jones Industrial Average slide by more than 50% and the average small investor losing a similar percentage. But at the same time, wealthier clients who were in a position to take advantage of hedge strategies lost only half as much. That is when Hedgeable arrived to take some of those money-saving strategies to the masses.
This also explains the company’s name. Though Hedgeable doesn’t use complex instruments, derivatives or other risky techniques to hedge a portfolio, they do pursue a strategy that protects from catastrophic losses that hurt long-term portfolio growth.
Is it working? The company claims its two-year composite investment performance for 2014 and 2015 was 4.2%, compared to -0.53% for a “robo index” made up of the estimated returns for Betterment and Wealthfront, the two largest robo-advisors.
How Hedgeable Works
Hedgeable challenges the industry standard of investment strategies based on markets that increase in value every year. Instead, the platform is more actively managed and will use tactical security selection to react to changing circumstances, and even completely sell out of equity positions as it deems necessary. The service also offers investment alternatives that are not typically available with other robo-advisors.
To start with, every client can “test drive” the Hedgeable investment platform. All you have to do is sign up on the site, but there’s no need to deposit any funds. You can work through the platform and commit funds once you decide it’s the right choice for you.
Hedgeable operates like other robo-advisors in that they construct a customized portfolio based on your account type, risk tolerance, income requirement and net worth.
Much like other robo-advisors, Hedgeable also has you complete a questionnaire that asks the following five questions:
- If a family member or friend who knows you well were to describe you, they would generally say you are… and you have to choose an answer.
- If you were to open up the newspaper and see that the U.S. equity market dropped 5% (a very drastic downward move) the day prior what would you anticipate being your first thought?
- Which of the following scenarios presents the best outcome for you?
- Which of the following best describes the securities you have held in your portfolio?
- How do you normally determine what to buy/sell in your portfolio?
Depending on your risk level, your portfolio allocation may be composed of both stocks and ETFs, or even entirely of stocks. That’s not at all typical of robo-advisors.
Investment Options Available
In addition to the fact that Hedgeable’s investment approach is more diversified than other robo-advisors, they also integrate the following asset classes into the platform free of charge and with no additional minimums:
Through a partnership with a leading private equity platform (CircleUp) Hedgeable provides the opportunity for clients to invest in private equity investments. CircleUp focuses on consumer and retail startups that offer real products and give you an opportunity to invest in promising small businesses on the ground floor — when the investment returns are the richest. You must be an accredited investor to participate in this investment.
Hedgeable has integrated with Coinbase, the world’s leading Bitcoin platform, to offer a managed digital currency position at no extra cost. This will enable you to allocate at least some of your portfolio into the growing new cyber-currency. The Bitcoin position is intended to act as a hedge on some of the downside risk associated with the U.S. dollar. It’s seen as a counterbalance to a portfolio that is otherwise constructed entirely of dollar-denominated assets.
Real Estate and Commodities
Unlike many other robo-advisors, who invest mostly or exclusively in a mix of stock and fixed-income sectors, Hedgeable also includes real estate and commodities as part of a portfolio allocation. At a minimum, these positions may be added to your portfolio at times when it is believed to be advantageous. They have dozens of proprietary tools that measure the interaction between securities and asset classes in hundreds of different market scenarios and economic environments. Investments may include real estate, precious metals, energy and agricultural products. And once again, these asset classes are seen at least in part to be a counterbalance to weakness in the U.S. dollar.
What Makes Hedgeable Unique
The above asset classes should make it clear that Hedgeable is not a conventional investment platform. They will include in your asset allocation investments that are either unique or more typical of very large and sophisticated investors.
But Hedgeable also offer something else that’s totally unique, at least for small investors:
Downside Risk Protection — This is a feature that is virtually unknown outside hedge funds. Hedgeable uses proprietary technology that focuses on minimizing large losses. You also have the option to go into a 100% cash position at any time during high-risk periods to preserve capital.
The company is quick to point out that its downside risk protection does not involve market timing. In fact, they maintain that their investment strategy is more reactive than predictive. When markets are losing money, they will gradually sell out of positions in an attempt to minimize losses and preserve capital. Market timing on the other hand, attempts to predict future market activity.
|Account Fees||0.30% – 0.75% Annually — Depending upon amount deposited|
|Accounts Available||Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Trusts, 401(k), Individual, and Joint|
|Automatic Deposits||Yes — Weekly, Bi-Weekly, Monthly, and Yearly|
|Mobile App||Yes — Apple iOS and Google Android|
|Customer Service||Live Chat — M-F, 9A-7P ET; Sa-Su, 12P-5P ET|
- Custodial Services — All accounts are opened in the client’s name, and Hedgeable acts as the investment manager, but accounts are held by a third-party institutional custodian.
- Tax Loss Harvesting — This topic can get quite complex and confusing to the average investor. And Hedgeable believes the best way to grow wealth is to limit losses in the first place, rather than take advantage of the losses to offset tax liabilities.
- SIPC Protection — Assets are protected by the Securities Investor Protection Corporation (SIPC), up to $500,000 in value. Hedgeable’s broker/dealer has purchased supplemental insurance as well.
There’s a lot of good news on the pricing front. Hedgeable offers an all-in-one fee structure, called a wrapped fee. It includes Hedgeable’s management fee, the custodial fee, product fees, trading costs, analytics, administration and support. And since ETF fees are taken out at the fund level, you will not be paying these as a separate fee.
The current fee structure is as follows:
|$0 – $49K||$50K – $99K||$100K – $149K||$150K – $199K||$200K – $249K||$250K – $499K||$500K – $749K||$750K – $999K||$1M+|
That fee structure isn’t actually a good deal higher than what is available at competing robo-advisors such as Wealthfront (0.25%) and Betterment (0.35% down to 0.15%), but Hedgeable offers a much more specific investment strategy than others do.
Whether the higher fee is justifiable or not, will depend upon real-world experience. The primary advantage of Hedgeable is the strategy of reducing market exposure during downturns. If that works out as promised, then Hedgeable will likely prove to be the far superior investment platform over the long run.
But if it doesn’t, you may end up paying for little more than a fancy investment theory. Still, it’s nice to have the option, and Hedgeable may be one worth trying. After all, the claim of being able to minimize downside risk is pretty spectacular.
Total Assets — As of July 31, 2015, Hedgeable holds $35,216,393 in client assets of which $35,216,393 is managed on a discretionary basis, and $0 managed on a non-discretionary basis. They also have $474,827,789 in assets under advisement (AUA), according to their public firm brochure.
- No account minimum — You can invest as little or as much as you like.
- Diverse portfolios — Hedgeable's offerings are among the most diverse, offering such asset classes as real estate and Bitcoin.
- Downside risk protection — Virtually unknown outside hedge funds. Hedgeable uses proprietary technology that focuses on minimizing large losses. You also have the option to go into a 100% cash position at any time during high-risk periods to preserve capital.
- High fees — Hedgeable's fees are on the high side, especially when compared with competitors Betterment and Wealthfront.
- Relatively untested — Hedgeable is a young service that has yet to experience a major downturn, so we don't know how it will perform in that kind of a market.
Hedgeable is definitely bringing the options found at the most exclusive investment advisors to everyday investors online. We gave Hedgeable a rating of 3.5 out of 5 stars since the concept is exciting but has yet to experience a real-world test of its primary investment strategy, having only come into existence at the very end of the last bear market. Time will tell.