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Hedgeable Ushers in Digital Asset Manager 2.0

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Last year, robo-advisors came on in a big way. What's a robo-advisor? Glad you asked. According to Wikipedia a robo-advisors is "a class of financial adviser that provides portfolio management online with minimal human intervention."

They fit in-between the two extremes of do it yourself investing and having a financial advisor. They take a small fee, usually a half of a percent or less, to manage your money. That's less than a financial advisor, so it can save some people money. It scales well for the company, so as long as their algorithms are good, it's a win-win. It's also a good fit for those who don't have the money for a traditional advisor.

I thought I knew all the basic robo-advisors out there. Imagine my surprise when a company, Hedgeable contacted me and said they've been a digital asset manager since 2009. In this article, I’m going to dive into what Hedgeable offers, covering how they are similar to and how they differentiate themselves from robo-advisors version 1.0.

Hedgeable bills itself as version 2.0 of the digital asset manager. Where robo-advisors maintain a buy-and-hold philosophy, Hedgeable aims to provide downside protection for your investments. I can see the light bulb in readers' heads go off, "So it's a combination of a robo-advisor and a hedge fund!"

Hedgeable told me that they "offer dynamic and tactical risk-managed strategies as well as new products like the ability to invest in Bitcoin, privates companies, and alternative investments."

The company explained their technology to me. I'll quote their own words, so I don't add any confusion:

"The concept is simple: to participate in market upside and not market downside. Hedgeable’s technology will sell off declining securities and replace them with rising securities or safe assets (fixed income or cash) when rising securities aren’t available. This system may sound like market timing but it is an entirely reactive system, relying on market indicators and selling and buying securities in increments. In contrast, a buy-and-hold strategy, the strategy that other robo-advisors utilize, will track indices through the ups and downs of the market."

How Does Hedgeable Perform?

They presented me with a couple of figures to pass along. First here is the investment growth of Hedgeable’s Dynamic Aggressive ETF and its benchmark Diversified Asset Allocation (52% MSCI ACWI, 28% Barclays U.S. Aggregate Bond Index, 10% MSCI U.S. REIT Index, 10% Bloomberg Commodity Index) since inception:

(Click for larger version.)

Now here is an example of how it protects investments in a bear market. Specifically this pits a buy and hold philosophy (“Old Fashioned Investing”) versus Hedgeable’s asset allocation during the height of the 2008-2009 Credit Crisis. This chart shows the risk-management offered in a Hedgeable account. All of the assets were shifted to cash in the Plus program whereas the buy-and-hold strategy, the Basic program, stayed invested:

(Click for Larger.)

So how did Hedgeable perform last year? The average net client return was 7.4% and the returns ranged from 2.08% to 8.36%. They are careful to add the typical disclaimer, "Past performance does not guarantee future results."

They claim that you can sign up for Hedgeable in less than 5 minutes. You’ll be bought through a 10 step process that asks a series of questions aimed at getting your investment objectives and risk tolerance in order to place you in the correct strategy. Some of the things you’ll be asked are about your age, your investment size, and the time horizon of your investment. You’ll also be asked questions that get at how much of a risk taker you are. Along the way, you’ll see your risk score and asset allocation change as the questions narrow in on your risk level.

... And of course they make it easy to transfer assets from different accounts.

Hedgeable offers many different types of investments while robo-advisors like Wealthfront and Betterment offer a handful of ETFs. In face, there are so many invest options clients can invest in Bitcoin and private companies through their partnership with CircleUp.

My thoughts on Hedgeable

A lot of the above came from talking with Hedgeable directly. As I've written before, I like to buy assets when their value falls, not sell them. Conversely, I like to sell assets that have appreciated to avoid holding assets in a bubble. (Of course that all depends on the valuation of the assets.)

I can't quite endorse investing in Bitcoin or CircleUp, but I suppose it is nice to have for clients to have the option as long as they don't hang themselves with the rope. It's not like they are forcing these on people.

I love the idea of a company adding an aspect of market-timing (even if they don't call it that) as long as it is based on some kind of valuation.

At the end of the day, the returns appear to be what you'd think they'd be... somewhere around 6.5% with minimal downside (even their worst client made 2%). I'm guessing that for a lot of people, putting big chunk of their assets in such an investment wouldn't be a bad idea.

Last updated on February 11, 2015.

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