According to a blog post, Wealthfront is in the process of adding a wide range of funds to its customizable robo portfolios, including two cryptocurrency trusts. The robo advisor with assets under management of 21.5 billion) new ETFs and Wealthfront’s own Risk Parity Fund.
But the digital asset trusts have their price. While many of the new funds are eligible for tax loss recovery, the cryptocurrency trusts are not. None of the trusts tracked on CoinDesk indices have the basic robo-function of tax loss harvesting for assets in taxable accounts as there is no such thing as a “viable alternative fund”[s]“According to data from Wealthfront. Of course, there are other funds available to Wealthfront investors that are also not eligible for tax loss recovery simply because the company has not identified alternative funds to some of the funds it has made available.
The expense ratio for the trusts is 2% for the Grayscale Bitcoin Trust and 2.5% for the Grayscale Ethereum Trust.
The new investment options are designed to “make it easy to invest in Bitcoin and Ethereum directly in your Wealthfront portfolio without the need for wallets,” according to Wealthfront’s blog post. The trusts offer “indirect exposure to cryptocurrency” and investors who choose to purchase shares in the trusts cannot allocate more than 10% of their portfolio. “We limit your allocation to [the crypto trusts] because as trustees we act in your best interests at all times and these investments can be riskier and more volatile than most ETFs. “
Investors also cannot borrow against their crypto assets for a loan through the robo’s portfolio line of credit. The Risk Parity Fund is also not eligible for the PLOC product available to clients with a taxable investment account of at least $ 25,000.
Given the volatility of the cryptocurrency, rebalancing could happen more frequently with crypto than with other assets. If the value of the crypto trusts suddenly rises or falls and the share of digital assets deviates five percentage points from the investor’s target, a rebalancing measure will take place, said company spokeswoman Elly Stolnitz. In this way, the company’s algorithms would limit a single portfolio to no more than 15% of the cryptocurrency. “This is no different from the historical realignment of portfolios,” she added.
Wealthfront’s newfound enthusiasm for portfolio customization is a U-turn from its stance just a few years ago, when the company put significant effort into explaining why it drew investors to a finite universe of passive, low-cost ETFs. In a 2013 blog post, Andy Rachleff, CEO and Co-Founder of Wealthfront stated that “insane commissions” and higher management fees are reasons the Robo wouldn’t use DFA mutual funds, for example. Two years ago on another blog. Post praised Rachleff for the virtues of passive investing, calling it “a better way to invest”, despite admitting that he was once “a die-hard active management advocate.”
That said, Wealthfront flips the keys, so to speak, allowing investors to create their own portfolios to attract clients who just want a little more control. Offering crypto is another step in this direction.