FSRankings spoke with Hedgeable’s sales team in an exclusive interview:
1) You said two years ago that you wanted 50% of your business to be outside the U.S. How are you doing in reaching that goal? What markets are you focusing on now?
We are doing great! We have an open architecture platform that anyone around the world can build on top of. We believe we will have over 1 billion customers on the platform within 5 years.
2) Hedgeable offers a variety of investment options beyond ETFs, such as bitcoin and venture capital. Any plans to introduce more investment options?
We are considering adding P2P loan investing and private real estate investing.
3) Does Hedgeable continue to prefer to work through larger financial service companies rather than individuals entrepreneurs when it comes to licensing? Or has the outlook changed?
We will consider both. If a startup has an awesome idea and we think it’s a good long-term value proposition to the end customer we are open to chatting.
4) Can you talk more about why Hedgeable does not do dollar-cost averaging and how it conflicts with downside protection?
When clients signup they can be anywhere from 0%-100% invested in their strategic asset allocation from day one, so phasing in purchases via dollar cost averaging would be contradictory.
5) How do you construct your asset allocations? Given the flaws with mean-variance optimization, do you essentially overlay MVO with your own backtesting and sensitivity analysis? What data are you relying on for covariances of asset classes with relatively low data like private equity and real estate?
We have six different optimization methods, which includes MVO, but also more proprietary optimizations that look at drawdowns and VaR. We have proprietary methods for estimating correlation among securities, and our AI Lab is always working on new machine learning elements to these different algorithms.
6) What is the vehicle you use to enable real estate investments? Is it simply an allocation to publicly traded REITs? Private REITS? Delaware Statutory Trusts?
We purchase publicly traded REITs for real estate exposure.
7) What’s your recommendation of BitCoin as an investable asset? Is it for everyone? how do you figure out how much to allocate given BitCoin prices given we haven’t seen how cryptocurrencies perform during a time of severe financial distress? What is the correct way to set an allocation between different cryptocurrencies like BitCoin and Etherium?
We were the first retail platform to recommend and invest in bitcoin years ago, so we are obviously big fans of the technology. Please see our white paper on bitcoin investing to read more about risks and allocation decisions. We recommend that investors understand the underlying technologies of Ethereum and other new coins before making any purchase decisions and that they consult with a financial professional to see if they can afford to take the risks.
8) Your downside protection methodology is CPPI. How would it have performed though historical periods (e.g. say each of the last 10 decades)?
It actually is a variation of CPPI that is time-weighted. We have applied many proprietary methods on top of this framework over the years. Over time we believe this method would have helped investors to alleviate very large portfolio drawdowns, but we do not believe investors should rely on very long dated historical data when making decisions due to changes in trading patterns, size of markets, and new instruments over time. Note, past performance is not indicative of future performance. We make no warranty that this methodology will prove to be beneficial to every customer in the future and we recommend customers seek out the help of financial professionals before using any methods.
9) Core-Satellite works great if the satellite generates alpha. What’s your security selection process to beat the rest of the market when it comes to figuring out which “satellites” to ride? For example IBB did very well, XLE, not so much, over the last few years.
Please see our core-satellite white paper to see how we do our security rotation.