They say that good things come to those who wait. That is certainly the case with the HedgeCoVest platform for replicating hedge fund strategies. As is the case with every great invention, there were years of testing, development, trials and tribulations, but we have arrived at the best solution and we are now taking it to the street in a private launch before our public launch in March.
The first successful trade for a client was made on January 9 and there have been over 500 trades since then. These successfully executed trades are the beginning of the next phase in alternative investing. Individual accounts that offer more security than investing directly into a traditional hedge fund, more accessibility for investors, full liquidity and complete transparency.
Perhaps the best thing about HedgeCoVest is that it is being offered at a time when so many are considering robo-advisors and many brokerage firms are offering robo-advisors to their clients. A robo-advisor is an online wealth management service where the portfolio is managed by a computer-based algorithm. All investment decisions in the portfolio are generated by the technology.
HedgeCoVest is a sort of hybrid between a robo-advisor and a traditional advisor. The portfolio is automated to where the trades are made automatically, but the trade is typically being generated by a human being at one of the managers on the platform. The platform simply sees the trades being made by the model and then replicates the trade within the investor’s individual account.
There is nothing wrong with computer-generated models, but from time to time they need the help of a human. Most of the models on the HedgeCoVest platform rely heavily on technology for research and idea generation, but most of them have a human element as well.
One of the benefits the robo-advisor firms point out is the lower costs of using their technology as opposed to a traditional advisor. That is also a benefit that HedgeCoVest offers. While the management fee for HedgeCoVest isn’t as low as a robo-advisor, it is much lower than the traditional hedge fund fee structure.
Some people might look at what has happened in the market thus far this year and say that it was a poor time to launch the HedgeCoVest platform as the S&P lost 3.1% during the month. On the contrary, it is when the market is weak and volatile that the traditional hedged strategies tend to outperform the overall market and thus January was the perfect month for the launch.
As an example, a portfolio invested equally in the top five models on the HedgeCoVest platform was up 0.6% during the month of January while the S&P returned -3.1% in January. The main idea behind hedge funds is to protect and grow your assets. Part of protecting the portfolio is to be in cash or to have short positions to help the portfolio during market declines. Most robo-advisors do not make bearish bets or hedge the portfolios. They may move to cash or to bonds from time to time, but they aren’t looking to profit from a downside move.
Another big difference between HedgeCoVest and robo-advisors is that the models on HedgeCoVest are actively managed. On most robo-advisor platforms, the investor goes in and fills out their profile, the funds are allocated and then aren’t re-allocated unless the investor goes in and changes something on their profile.
Should we go through another bearish cycle like the ones we saw in 2000-2002 and again in 2007-2009, a robo-advisor portfolio isn’t going to help much unless it changes the allocations dramatically. And the more aggressive the profile of the investor, the more likely the portfolio will have a large allocation to growth oriented stocks or indices. ETFs are very popular on robo-advisor platforms, so an aggressive portfolio might have small cap index ETFs, technology based ETFs or even biotech ETFs. During a bearish period, these segments of the market tend to get harder than the defensive sectors or the blue chip indices.
Now that HedgeCoVest is up and trading, you should give it a look. You can fill out your profile and then open a brokerage account with Interactive Brokers or you can set up a paper trading portfolio and take it for a test drive before committing money to the program. After watching the market go up for the better part of six years, it sure seems like we are due for a down market or at the very least a choppy market.