Wealthfront is in the midst of adding a wide array of funds to its customizable robo portfolios, including two cryptocurrency trusts, according to a blog post. The robo advisor, which has $26.4 billion in AUM according to the firm (and listed $21.5 billion in AUM in its most recent regulatory filings), added the Grayscale Bitcoin Trust and Grayscale Ethereum Trust to its menu of available investments, a list that also includes a variety of ARK Invest’s actively managed funds, a handful of Dimensional Fund Advisors’ (DFA) new ETFs and Wealthfront’s own Risk Parity Fund.
But the digital asset trusts come at a cost. While many of the new funds are eligible for tax-loss harvesting, that isn’t the case for the cryptocurrency trusts. Neither of the trusts, which are tracked to CoinDesk indexes, come with the basic robo feature of tax-loss harvesting for assets in taxable accounts because there are no “viable alternate fund[s],” according to information provided by Wealthfront. To be sure, there are other funds available to Wealthfront investors that are also ineligible for tax-loss harvesting simply because the firm hasn’t identified any alternate funds to some of the funds it makes available.
The expense ratio for the trusts is 2% for the Grayscale Bitcoin Trust and 2.5% for the Grayscale Ethereum Trust.
The new investing options are designed to make it “easy to get exposure to Bitcoin and Ethereum right in your Wealthfront portfolio, no wallets required,” according to Wealthfront’s blog post. The trusts provide “indirect exposure to cryptocurrency” and investors opting to purchase units of the trusts won’t be able to allocate more than 10% of their portfolio. "We limit your allocation to [the crypto trusts] because, as a fiduciary, we act in your best interests at all times, and these investments can be riskier and more volatile than most ETFs."
Investors also won’t be able to borrow against their crypto assets for a loan via the robo’s portfolio line of credit. The Risk Parity Fund is also ineligible for the PLOC product, which is available to clients with at least $25,000 in a taxable investment account.
Given the volatility of cryptocurrency, rebalancing could occur more often with crypto than other assets. If the value of the crypto trusts suddenly rises or falls and the percentage of the digital assets deviates five percentage points from the investor’s target, a rebalancing action will occur, said company spokesperson Elly Stolnitz. In this manner, the firm's algorithms would limit an individual portfolio to no more than a 15% allocation to crypto. “This is no different than how we rebalance portfolios historically,” she added.
Wealthfront’s newfound enthusiasm for portfolio customization is a turnaround from its stance just a few years ago, where it devoted significant effort to explaining why it was steering investors toward a limited universe of passive, low-cost ETFs. In a 2013 blog. post, Wealthfront CEO and co-founder Andy Rachleff explained that “crazy commissions” and higher management fees were reasons why the robo wouldn’t be using DFA mutual funds, for example. Two years ago, in another blog. post, Rachleff extolled the virtues of passive investing, calling it “a better way to invest,” even as he acknowledged that he was once “a die-hard active management advocate.”
Nevertheless, Wealthfront is turning over the keys, so to speak, allowing investors to design their own portfolios as it seeks to attract customers who want just a little more control. Offering crypto is one more step in that direction.