Hedgeable Review – An Automated Hedge Fund for Small Investors
Hedgeable Review – Invest Like the Big Money Players
Hedgeable Expert Review
Founded in 2009, Hedgeable is a robo-advisor, but one with a distinct twist. The name includes the word “hedge”, and that’s not an accident. Hedgeable is democratizing investing, by bringing investment hedge techniques to the average small investor. You get the benefit of this technique with an account balance as small as $1.
“Hedging” means that Hedgeable includes the use of both alternative investments, like precious metals, currencies, and even Bitcoin, but also “shorts” both equities and fixed income investments in certain market conditions. Shorting is an alternative strategy that enables the investor to make money on a security when it declines in value.
The platform also holds positions in fixed income investments and growth equities, in addition to hedging strategies. But the addition of those strategies provides the investor with what Hedgeable refers to as “downside risk protection”.
Hedgeable Robo Advising Features at a Glance
|Overview||Automated private wealth management robo-advisor that offers customized portfolios, based on investor goals; as the name implies, your portfolio can be “hedged” against downside risk.|
|Minimum Investment Amount||$1|
|Fee Structure||Tiered pricing from 0.75% to 0.30% based on portfolio size|
|Top Features||A portfolio that’s invested beyond index fund equity and fixed income investments; includes exposure to alternative investments; seeks to minimize downside risk|
|Contact & Investing Advice||Available seven days per week, by phone, email and live chat|
|Investment Funds||Low-cost index stock and bond ETFS, and individual stocks|
|Accounts Available||Individual and joint taxable brokerage accounts; trust and custodial accounts; traditional, Roth, rollover, SIMPLE and SEP IRAs; traditional and Roth Solo 401(k)s; accounts available for individuals, corporations, partnerships, LLCs, sole proprietorships, investment clubs and unincorporated organizations|
|Promotions||None at present|
What Differentiates Hedgeable Robo Investing From Competitors
Hedgeable isn’t a standard robo-advisor, despite the fact that it is largely managed in the same way. For example, rather than restricting investments to only ETF’s, the platform invests in funds, but also individual securities and alternative investments. Your portfolio may hold anywhere from 5 to 50 securities.
This is where it’s important to realize that Hedgeable functions much like an automated hedge fund for small investors. The platform takes the position that it must hedge against market declines, and also profit in various market environments. This is very unlike the typical robo-advisor investment portfolio that seeks to simply match the markets by investing in index-based funds.
For example, in addition to equity and fixed income investments, Hedgeable also invest in commodities, real estate, energy limited partnerships, replication strategies, currencies, and even takes short positions in both equities and fixed income investments. You can even invest in venture capital and Bitcoin through the platform.
Also unlike typical robo-advisors, Hedgeable seeks to hold at least some of the portfolio in interest-bearing cash assets. Most robo-advisors avoid investing in cash, in order to keep investors fully invested at all times. Hedgeable takes the position, similar to Schwab Intelligent Portfolios, that a certain amount of cash is necessary in a portfolio.
And since Hedgeable is managed as a hedge fund, it is an actively managed platform. It’s investment managers will adjust portfolios as they deem necessary to deal with different market conditions. This is completely different from other robo-advisors, who create passive investment portfolios, that are adjusted or rebalanced only for asset allocation based on the individual investors risk tolerance, investment goals and time horizon.
Who Benefits from the Hedgeable Financial Advisor Robo?
Hedgeable is the robo-advisor platform for the small investor (and the large one too) who wants a more sophisticated strategy, that both protects against downside risk, and holds the possibility of earning higher returns in more volatile markets.
Hedgeable uses hedging strategies that historically have been available only to very large investors. But they are bringing those strategies down to the average investor, and doing so at a very affordable fee structure.
Hedgeable Drill Down
Hedgeable Investment Mix
Rather than the usual mix of 6 to 12 ETF’s that are found in typical robo-advisor portfolios, Hedgeable’s AI engine uses complex algorithms, and builds portfolios that can include hundreds of different securities. The mix includes both funds and individual securities. They select investments from 16 asset classes.
The Hedgeable asset classes include:
- U.S. Equities
- International Equities
- Emerging Market Equities
- U.S. Fixed Income
- International Fixed Income
- Emerging Market Fixed Income
- Real Estate
- Master Limited Partnerships (in high-yielding, publicly traded energy limited partnerships)
- Alternatives – Hedge fund replication strategies
- Absolute Return – strategies designed to produce positive returns in all economic climates
- Short U.S. Equities
- Short Emerging Market Equities
- Short Fixed Income
- Cash (Interest-bearing FDIC-insured cash holdings)
When Hedgeable constructs of portfolio, it always has a (client) goal associated with it. Each goal has two main dimensions: the level of diversification and the targeted growth potential. The growth potential component is based on how aggressive the risk/reward profile of the investment mix is.
In establishing investment goals, Hedgeable uses a sign-up questionnaire that uses data science to implement a robust 200-point tailoring process, with allocations determined by account type, account size, net worth percentage, risk appetite and investment horizon, among other factors.
Core-Satellite Investing. This is an investing approach that Hedgeable uses in the construction of portfolios. You have a core section that acts as the base of the portfolio, while the satellite portion is allowed to rotate in the different asset classes and sectors as market conditions change.
Hedgeable also offers clients the ability to customize their portfolios. For example, they can create portfolios that incorporate the following:
- Impact Investing – This is socially responsible investing, with causes such as alternative energy, female leadership, low carbon emissions and LGBTQ equality.
- Income – An emphasis on income for those in or nearing retirement.
- Venture Capital – If you are an accredited investor, you can invest in private companies through Hedgeable’s partnership with CircleUP.
- Bitcoin – You can have a small portion of your portfolio invested in Bitcoin, since it’s considered an alternative currency and a potential hedge against the US dollar.
At certain times, a portfolio can be concentrated in a select few asset classes, while at other times it can be extremely diversified.
Once Hedgeable establishes a Goal, it then constructs a strategic mix of investments designed to match a benchmark return that’s associated with the goal. It’s a process that involves thousands of Monte Carlo simulations, back tests, sensitivity analyses and even studies. The process uses Hedgeable’s 100+ proprietary portfolio modeling tools.
Rebalancing. Hedgeable’s investment strategy includes automatic rebalancing. You can expect your account to be rebalanced anywhere from one to four times per month.
Modern Portfolio Theory (MPT). MPT is standard investment procedure in nearly all robo-advisors. But Hedgeable rejects strict reliance on MPT. They take the position that correlated relationships between different assets are subject to change, particularly during times of systemic crisis. They also believe that the risk assumptions used in MPT are not updated frequently enough during the course of a year to adjust properly for changing circumstances. For that reason, they update their risk assumptions on a regular basis.
Other Hedgeable Investment Features and Tools
Tax-loss Harvesting. The service is automatic on all taxable accounts. There is no additional fee.
Account Aggregation. Much like Personal Capital, Hedgeable enables you to input your credit cards, other brokerage accounts, loans, mortgage and bank accounts in the platform so that you can keep track of your entire financial life in one place.
Hedgeable Rewards Points. As a Hedgeable investor, you can earn points for investing toward your goals, which can be used to unlock new tech products. These can include Warby Parker Glasses, Amazon Prime Membership, Apple Watch, Apple TV, iTunes, Spotify Premium, and Samsung Gear VR Headset.
Investor Alerts. While your Hedgeable account is fully automated, you will receive trade alerts via email or push notification if you are an iPhone user. The alerts will come with commentary from the investing team.
Hedgeable fees work on a sliding scale. The range is from 0.75% for account balances below $50,000, to 0.30% for accounts of $1 million or more. The fee schedule looks like this:
Hedgeable’s fee is a “wrapped platform fee”, which is a fancy way of saying that it’s all-inclusive. It includes the advisory fee, custodial fee, trading costs, administration, support and access to the Hedgeable technology platform.
The exception is EFT fees, which are subtracted at the fund level. The average expense ratio for the funds used by Hedgeable is 0.15%. This fee goes directly to the ETF firm, not to Hedgeable.
The fee is pro-rated and withdrawn from your account on a monthly basis.
Hedgeable Sign-up Process
In order to open an account with Hedgeable the must meet these criteria:
- You must be a U.S. citizen or resident alien
- You must have a valid U.S. Social Security number
- You must have a valid U.S. address.
- You must be 18 years old or older.
You can sign up for the service in as little as one minute, by signing in with either Facebook or LinkedIn.
Next, you’re asked a series of 10 questions, including:
- Open a new account, transfer an existing account, or rollover an existing retirement plan?
- Choose the account type you would like to have at Hedgeable
- Enter your investment asset size for this account.
- Annual income and tax filing status
- In how many years do you plan to liquidate this portfolio or retire?
- How much of your total liquid net worth does this account represent? (From Question 3)
- Will you depend on this portfolio for a portion of your monthly income?
- Do you want your portfolio to be entirely comprised of socially responsible companies?
- Are you interested in investing a small portion of your portfolio in Bitcoin? (or Venture Capital)
Question 10 is comprised of three different risk profile oriented questions.
Once you’ve completed the questionnaire, you get your investor profile and recommended portfolio (see image above).
Hedgeable Pros and Cons
Hedgeable Robo Advising Pros
- Hedgeable provides small investors with an opportunity to invest using sophisticated hedging techniques, that are designed to minimize investment losses, particularly during volatile market phases.
- A Hedgeable investment portfolio is much more widely diversified than those provided by most other robo-advisors. You can include real estate, commodities, currencies, and short positions in your portfolio. You can even hold Bitcoin. Although M1 Finance comes close to offering this type of investment variety.
- You can include multiple portfolios with in your plan, each having a different goal.
- While the Hedgeable fee structure is high among robo-advisors, it’s well below those charged by traditional hedge funds, under the assumption that such investment options were even available to small investors.
- Many types of investment accounts available.
Hedgeable Robo Advising Cons
- Hedgeable is a robo-advisor, but one for more sophisticated investors. It’s not a platform for the general investing public.
- The fee structure of 0.30% to 0.75% is high for robo-advisors, particularly since the vast majority of investors will pay 0.50% or more for portfolios of $500,000 or less. But it’s really an apples-to-oranges comparison, since Hedgeable is not a typical robo-advisor.
Hedgeable Robo-Advisor Review Wrap Up
Hedgeable isn’t a robo-advisor for all investors, certainly not in the sense that Betterment, Wealthfront and other low-cost platforms are. But for the investor who wants better protection in down markets, as well as an opportunity to outperform the markets in general, Hedgeable is a service well worth investigating.
It’s probably better suited for more sophisticated investors, of all portfolio sizes, who understand the risks and rewards of hedging, and are looking for that specific investment angle.
If you would like more information, or you would like to sign up for the service, click here to visit the Hedgeable website.
Download: Robo-Advisor Comparison Chart
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.