Hedgeable rating

Hedgeable Review


Hedgeable brokerage firm fees, IRA accounts, pros and cons. Is Hedgeable good? Hedgeable's socially responsible ETFs, account costs, minimums, investments, and problems 2017.


Synopsis of Hedgeable


A new robo advisor wants to “totally change Wall Street.” Hedgeable promises to democratize investing with low fees and high transparency. In fact, the company’s logo, which has a slash through the letter H, visually shows the company’s goal of slashing through the old ways of doing business in America’s financial world. The logo also shows a path towards innovation using artificial intelligence. The robo-advisory firm offers some unique account management features, but also has a few shortcomings. Let’s find out what they are.


Is Hedgeable Safe and Insured?


Hedgeable is registered with the Securities and Exchange commission, the investment regulator at the federal level in the United States. Hedgeable has been licensed since 2009, the year the company was founded. Its license number (150300) does not show any disciplinary actions.

Hedgeable accounts are also protected by SIPC, the major brokerage insurer. The insurance carries a maximum of $500,000 per account. Free cash balances are swept to FDIC-insured banks. Up to 12 are used, which produces a maximum of $3 million of insurance for individual accounts. Joint accounts are eligible for $6 million of protection.

The company is privately owned, so there are no publicly-traded shares or large parent company. It uses a third-party as custodian, which means Hedgeable doesn’t actually hold client funds.


Hedgeable’s Robo Service


Like other robo advisors, Hedgeable uses a computer program to make trading decisions for their clients, and in return, the broker takes a percentage of assets each year. But the similarities stop there. Hedgeable uses artificial intelligence to construct portfolios that contain hundreds of different securities. This is a unique model, as most robo-advisory plans only trade a few ETF’s.

Hedgeable goes beyond low-cost ETF’s by incorporating stocks, cash positions, and even exotic investments like bitcoin. Also available are master limited partnerships, real estate, commodities, and private equity. The robo advisor also offers international equities, including emerging market securities.

Many account types can be opened with the brokerage firm. Besides individual accounts, Hedgeable offers joint accounts, solo 401(k)’s, IRA’s, UGMA/UTMA accounts, investment clubs, rollover accounts, and trusts. In total, there are more than 25 account types available.

The Hedgeable AI typically makes between 12 and 48 rebalancing trades per year in an account. Retirement accounts experience a higher level of trading, as do accounts with balances above $100,000. On average, the company says there should be about one change in an account per month. The computerized trading system does not make trades on any pre-defined time schedule. Rather, it buys and sells whenever it deems it necessary.


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Hedgeable Investment Philosophy


Perhaps the most unique feature of Hedgeable is its investment philosophy. Most robo firms use Modern Portfolio Theory, which emphasizes long-term buy-and-hold investing, without making portfolio changes during economic cycles. The Hedgeable software program, however, attempts to limit account drawdowns during bear markets. The company believes that every portfolio is hedgeable (hence the name) without resorting to complex derivatives.

Hedgeable uses dynamic asset allocation to achieve maximum growth over all market cycles. Under dynamic asset allocation, the company’s AI will sell securities that have risen by a pre-determined amount and use the proceeds to buy assets that are undervalued or have appreciated less. Thus, Hedgeable is a robo advisor that uses active management.

While the market is rising, the Hedgeable bot will try to outperform the market; and while the markets are declining, it will try to track benchmarks. The purpose of all this is to reduce beta and volatility. The end result is supposed to be better risk-adjusted returns over the lifetime of a portfolio.


Hedgeable Investing Review


During a bear market, Hedgeable might shift a portfolio’s assets to other investment classes, such as bitcoin or cash. This method of financial management is supposed to produce a greater level of downside protection. Account holders have the ability to turn these investment features on or off.

The downside protection is not market timing, which is predictive. Hedgeable does not try to predict securities markets, but it does react to them. The broker’s software program looks at the market each day to determine if there needs to be a change in a portfolio’s structure due to market movements.


Impact Investing


Impact investing is also available at Hedgeable. The broker is able to incorporate various causes into its computerized trading decisions. Adding socially-conscious investment goals to a portfolio is optional, and can be modified by the account owner.


Core-Satellite Investing


Hedgeable also offers satellite investments for accounts larger than $100,000. The core portion includes all assets below $100,000. The broker’s computer program buys and sells core assets for this segment, such as stocks and bonds.

Satellite positions are those above $100,000. These assets include investments such as currencies, growth stocks, individual countries, small-cap stocks, emerging market ADR’s, and commodities.

The satellite positions have a low correlation to the core assets. Hedgeable claims that this investment method will produce above-average returns compared to a benchmark. The broker also says that big Wall Street firms like UBS and Goldman Sachs offer this type of financial management to high-net worth customers. There is no fee for it at Hedgeable.


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Hedgeable Pricing


Like other robo advisors, Hedgeable charges a yearly asset-based fee. It is a percentage of an account’s value, and decreases as assets increase.

Portfolio ValueFee
$0 - $49,999 0.75%
$50,000 - $99,999 0.70%
$100,000 - $149,999 0.65%
$150,000 - $199,999 0.60%
$200,000 - $249,999 0.55%
$250,000 - $499,999 0.50%
$500,000 - $749,999 0.45%
$750,000 - $999,999 0.40%
Over $1,000,000 0.30%


As can be seen, small accounts pay 75 basis points per year. It takes a hefty million dollars to reach the company’s best rate. Hedgeable does aggregate accounts based on a Social Security number or tax ID number. If you had one taxable account and one IRA, for example, Hedgeable would combine those two balances. The broker does not combine household balances, however.

An account at Hedgeable can be opened with just $1. There are no commissions charged on any trades that occur inside a portfolio. The broker’s percent-based fee covers just about everything; although there are miscellaneous fees for bank wires ($30), checkwriting ($7.50), ACAT service ($100), and other services. A partial transfer costs $5 per security with a $25 minimum. There is also a $25 annual fee for an IRA.


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Technology


Hedgeable is an easy-to-navigate website that hosts a lot of helpful information on the company’s philosophy and investment methodology. It provides a mobile app that is compatible with Apple and Android devices.

During our investigation into Hedgeable, its website was unavailable once, showing “503 Service Unavailable.” This outage occurred on a market day and lasted for a few minutes.


Hedgeable Comparison To Other Firms


Compared to other robo-advisory firms, Hedgeable is on the expensive side. TD Ameritrade’s Essential Portfolios, for example, costs just 0.30% for the smallest account; although there is a $5,000 minimum.

M1 Finance clients pay 0.25% for the company’s robot. There is also a promotion that provides free management on the first $15,000 deposited.

Betterment and Wealthfront both use drift-based rebalancing. This means that both robots will buy more stocks when the stock market declines, in order to bring a portfolio back in line with a pre-assigned asset mix. Hedgeable uses drift-based rebalancing plus downside-protection rebalancing, which makes more drastic portfolio changes, including going to 100% cash in some instances.

Because Hedgeable was setup in 2009, the company missed the financial crisis of 2007-2008. As a result, no one knows how its computer algorithms would do in a different economic environment. The U.S. stock exchanges have been in a bull market phase since 2009. Some of Hedgeable’s rivals were founded after the crisis as well, but since Hedgeable’s AI is designed to adjust for downside movements, it is more important to know how well it would perform in a bear market.


Hedgeable Review Summary


Hedgeable has a unique position as an active robo advisor. In return for higher fees, the broker offers a software program that will attempt to protect accounts during market downturns. This style of investing used to be the stuff of billionaires and hedge fund managers. As promised, Hedgeable has brought it to the masses.


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Hedgeable reviewed by Brokerage-Review.com on . Rating: 4



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