About the Founder

The founder and owner-operator of Hedgewise, Lee Tobey, has worked at one of the largest hedge funds in the world and seen first-hand how institutions engineer higher returns with less risk. His work is focused on using quantitative techniques to create investment strategies which systematically outperform by eliminating behavioral bias and taking advantage of inefficient markets.

Prior to founding Hedgewise, Mr. Tobey was a Management Associate at Bridgewater Associates, LP and a Senior Consultant with Oliver Wyman. He has a B.S. in Economics from the Wharton University at the University of Pennsylvania.

Disclosure

This information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice. Hedgewise makes no warranties and is not responsible for your use of this information or for any errors or inaccuracies resulting from your use. Hedgewise may recommend some of the investments mentioned in this article for use in its clients' portfolios. Past performance is no indicator or guarantee of future results. Investing involves risk, including the risk of loss. All performance data shown prior to the inception of each Hedgewise framework (Risk Parity in October 2014, Momentum in November 2016) is based on a hypothetical model and there is no guarantee that such performance could have been achieved in a live portfolio, which would have been affected by material factors including market liquidity, bid-ask spreads, intraday price fluctuations, instrument availability, and interest rates. Model performance data is based on publicly available index or asset price information and all dividend or coupon payments are included and assumed to be reinvested monthly. Hedgewise products have substantially different levels of volatility and exposure to separate risk factors, such as commodity prices and the use of leverage via derivatives, compared to traditional benchmarks like the S&P 500. Any comparisons to benchmarks are provided as a generic baseline for a long-term investment portfolio and do not suggest that Hedgewise products will exhibit similar characteristics. When live client data is shown, it includes all fees, commissions, and other expenses incurred during management. Only performance figures from the earliest live client accounts available or from a composite average of all client accounts are used. Other accounts managed by Hedgewise will have performed slightly differently than the numbers shown for a variety of reasons, though all accounts are managed according to the same underlying strategy model. Hedgewise relies on sophisticated algorithms which present technological risk, including data availability, system uptime and speed, coding errors, and reliance on third party vendors.

Introduction

Hedgewise utilizes an intelligent "managed account" structure, in which we are given permission to make trades within a client's brokerage account at an independent custodian. This allows us to essentially skip the creation of an ETF or mutual fund. For example, rather than creating an ETF that always holds 10 underlying stocks, we can simply buy those 10 stocks for a client directly. Hedgewise pays for all trading commissions, does all the rebalancing, and even optimizes for taxes. By operating in this way, clients get access to a number of significant benefits.

Benefits

First, we are able to create new products faster and offer them at a lower cost. This is because we avoid the significant time and regulatory expense involved in bringing an ETF or mutual fund to market.

Second, clients no longer have to worry about trading commissions. We cover these as part of our fee just like an ETF covers operating costs as part of its expense ratio. We are just removing a layer in the middle and passing the savings along to our clients.

Third, our products tend to be more intelligent and flexible than a typical ETF, which is usually tied to some kind of simple index and has rules that are set in stone. We build our investment algorithms to be responsive to changes in market conditions, and can continuously improve them over time.

Fourth, our products are customized for each individual client, taking into account factors like taxes and even offering customizable risk levels where appropriate.

Finally, we are able to offer significant fee discounts for larger account sizes. Imagine trying to negotiate a lower fee with an ETF provider!

Independent Custodian

By keeping an account at an unaffiliated custodian, you get peace of mind that your assets are fully SIPC insured and always under your control. Hedgewise is simply given permission to manage your portfolio on your behalf. After opening and funding the account, Hedgewise clients can monitor their performance and change their portfolio allocation through their personal Hedgewise dashboard.

Disclosure

This information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice. Hedgewise makes no warranties and is not responsible for your use of this information or for any errors or inaccuracies resulting from your use. Hedgewise may recommend some of the investments mentioned in this article for use in its clients' portfolios. Past performance is no indicator or guarantee of future results. Investing involves risk, including the risk of loss. All performance data shown prior to the inception of each Hedgewise framework (Risk Parity in October 2014, Momentum in November 2016) is based on a hypothetical model and there is no guarantee that such performance could have been achieved in a live portfolio, which would have been affected by material factors including market liquidity, bid-ask spreads, intraday price fluctuations, instrument availability, and interest rates. Model performance data is based on publicly available index or asset price information and all dividend or coupon payments are included and assumed to be reinvested monthly. Hedgewise products have substantially different levels of volatility and exposure to separate risk factors, such as commodity prices and the use of leverage via derivatives, compared to traditional benchmarks like the S&P 500. Any comparisons to benchmarks are provided as a generic baseline for a long-term investment portfolio and do not suggest that Hedgewise products will exhibit similar characteristics. When live client data is shown, it includes all fees, commissions, and other expenses incurred during management. Only performance figures from the earliest live client accounts available or from a composite average of all client accounts are used. Other accounts managed by Hedgewise will have performed slightly differently than the numbers shown for a variety of reasons, though all accounts are managed according to the same underlying strategy model. Hedgewise relies on sophisticated algorithms which present technological risk, including data availability, system uptime and speed, coding errors, and reliance on third party vendors.

Hedgewise chose Interactive Brokers, an unaffiliated third-party brokerage, to be the custodian for all client accounts and to execute all of a client's trades. This gives you full transparency on exactly where your money is and how it is being invested. You always have full control over your account.

We selected our brokerage based primarily on four factors:

1) Overall cost

Interactive Brokers provides a unique set of features that allow us to cover most account costs for clients, including trading commissions, monthly minimum fees, and IRA custodial fees.

2) Derivative trading capabilities and cost

Hedgewise must be able to use options and/or futures contracts to execute some of its strategies, and at a reasonable cost.

3) Quality of execution

Trading costs such as spreads can be significant. The speed and method of trade execution by a brokerage can have a large impact on these costs.

4) Overall reputation

Hedgewise sought a brokerage which had a well-known brand and was reviewed highly by independent third-parties.

Selection of Interactive Brokers

Based on these factors, Hedgewise chose Interactive Brokers, which was rated the best online broker by Barron's from 2012 through 2015.

While you must have an account with Interactive Brokers in order to be a Hedgewise client, we are more than happy to help with the application process and answer any questions you have about them. We are constantly considering your overall client experience and evaluating our choice of brokerage.

Hedgewise does not receive any special compensation for use of Interactive Brokers services or for directing clients to use their services. We also do not charge any mark-up on commissions or receive any 'soft-dollar' services.

Interactive Brokers Disclosure

Interactive Brokers LLC is a registered Broker-Dealer, Futures Commission Merchant and Forex Dealer Member, regulated by the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), and is a member of the Financial Industry Regulatory Authority (FINRA) and several other self-regulatory organizations. Interactive Brokers is not affiliated with and does not endorse or recommend any introducing brokers or financial advisors, including Hedgewise Inc. Interactive Brokers provides execution and clearing services to customers of Hedgewise Inc. For more information regarding Interactive Brokers, please visit www.interactivebrokers.com.

Disclosure

This information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice. Hedgewise makes no warranties and is not responsible for your use of this information or for any errors or inaccuracies resulting from your use. Hedgewise may recommend some of the investments mentioned in this article for use in its clients' portfolios. Past performance is no indicator or guarantee of future results. Investing involves risk, including the risk of loss. All performance data shown prior to the inception of each Hedgewise framework (Risk Parity in October 2014, Momentum in November 2016) is based on a hypothetical model and there is no guarantee that such performance could have been achieved in a live portfolio, which would have been affected by material factors including market liquidity, bid-ask spreads, intraday price fluctuations, instrument availability, and interest rates. Model performance data is based on publicly available index or asset price information and all dividend or coupon payments are included and assumed to be reinvested monthly. Hedgewise products have substantially different levels of volatility and exposure to separate risk factors, such as commodity prices and the use of leverage via derivatives, compared to traditional benchmarks like the S&P 500. Any comparisons to benchmarks are provided as a generic baseline for a long-term investment portfolio and do not suggest that Hedgewise products will exhibit similar characteristics. When live client data is shown, it includes all fees, commissions, and other expenses incurred during management. Only performance figures from the earliest live client accounts available or from a composite average of all client accounts are used. Other accounts managed by Hedgewise will have performed slightly differently than the numbers shown for a variety of reasons, though all accounts are managed according to the same underlying strategy model. Hedgewise relies on sophisticated algorithms which present technological risk, including data availability, system uptime and speed, coding errors, and reliance on third party vendors.

Overview

Traditionally, investors must pay an annual fee to an ETF or mutual fund as well as trading commissions to their brokerage. With Hedgewise, clients pay a fee that is similar or less than competitive funds which also covers all trading commissions. In addition, many of our products include other benefits, such as tax optimization or risk customization. We believe this presents a compelling value proposition for our clients which we are able to offer due to our unique account structure.

Annual Fee

Hedgewise charges a percentage of each client's Net Liquidation Value ('NLV') as an annualized percentage, applied on a daily basis (252 business days are applied in this calculation method). NLV is equal to: Total cash value + stock value + securities options value + bond value + fund value. The annualized percentage fee varies depending on total AUM.

Example: Your previous day ending NLV is $100,000. Your fees for the given day will be: 0.7%*$100,000/252=$2.78.

Keep in mind that this fee is similar to one you might automatically pay to a competitive ETF or mutual fund through an expense ratio, but that our service includes access to a number of additional benefits.

Hedgewise does not charge any account sign-up or termination fee. All Interactive Brokers accounts opened through Hedgewise will not be charged a monthly minimum or IRA custodial fee. Hedgewise will also pay for or reimburse all trading commissions (excepting sub-advisory clients). Clients are responsible for all other expenses related to trading the assets in their account, including, but not limited to, ETF fees, bank service fees, and debit balances.

Note that fee discounts apply to all funds under management. For Investment Advisers, total AUM includes all sub-advisory accounts managed with Hedgewise. However, sub-advisory accounts are not eligible for fee reimbursement, including trading commissions, monthly minimum fees, and IRA custodial fees.

Fees will be deducted directly from a client's account in the month following the month which just ended, or immediately upon termination of an account for the amount of fees outstanding. Upon request, clients may be invoiced separately.

Minimum Monthly Fee

For smaller accounts, Hedgewise must charge a minimum monthly fee of $19.99 to cover basic administrative and trading costs. We believe this fee is reasonable given that we cover all trading commissions for most clients.

This minimum only applies if the annual fee calculation as described above falls below this amount.

Disclosure

This information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice. Hedgewise makes no warranties and is not responsible for your use of this information or for any errors or inaccuracies resulting from your use. Hedgewise may recommend some of the investments mentioned in this article for use in its clients' portfolios. Past performance is no indicator or guarantee of future results. Investing involves risk, including the risk of loss. All performance data shown prior to the inception of each Hedgewise framework (Risk Parity in October 2014, Momentum in November 2016) is based on a hypothetical model and there is no guarantee that such performance could have been achieved in a live portfolio, which would have been affected by material factors including market liquidity, bid-ask spreads, intraday price fluctuations, instrument availability, and interest rates. Model performance data is based on publicly available index or asset price information and all dividend or coupon payments are included and assumed to be reinvested monthly. Hedgewise products have substantially different levels of volatility and exposure to separate risk factors, such as commodity prices and the use of leverage via derivatives, compared to traditional benchmarks like the S&P 500. Any comparisons to benchmarks are provided as a generic baseline for a long-term investment portfolio and do not suggest that Hedgewise products will exhibit similar characteristics. When live client data is shown, it includes all fees, commissions, and other expenses incurred during management. Only performance figures from the earliest live client accounts available or from a composite average of all client accounts are used. Other accounts managed by Hedgewise will have performed slightly differently than the numbers shown for a variety of reasons, though all accounts are managed according to the same underlying strategy model. Hedgewise relies on sophisticated algorithms which present technological risk, including data availability, system uptime and speed, coding errors, and reliance on third party vendors.