This looks very interesting. Has anyone here used it yet? And does hedging really work with such low numbers? I thought the point of hedging was being able to spread the risk across lots of large investments. Can you really spread enough with only $1000?
Investors invest into the fund, the entirety of which is then available for the hedge, and the total profits/losses redistributed back to individual investors based on their share of the fund's total pool.
It specifically says they invest in your name and pick shorts based on your risk profile though, which is where I got confused. It is not pooling everyone's money together. So not sure how it actually can hedge with such a small amount of money.
Based on the article, they use holdings of the same 20 stocks, and seem to adjust risk exposure by varying the percentage of short-sell. Their Program Brochure[1] backs this up - you get fractional stock as part of an investment pool in the 20 stocks they choose, instead of entire shares, so you get the same relative hedge you would otherwise. They do mention direct ownership, but it's fractional shares still held through Apex.
On their FAQ: "Is Titan a hedge fund?: No. You are not investing in a hedge fund. Hedge funds pool their investors’ dollars together and each investor is treated the same. We keep your money in your own individual account and personalize this based on your risk tolerance and investment goals. Titan invests you like an active manager, with the personalization of an advisor in your pocket."
I could definitely not be understanding what they are saying, but it does say they are not pooling.
From the article it looks like Titan buys 20 stocks, and every Titan investor gets the same stocks in the same proportions, in an amount determined by how much they invested. The "hedging" part is that Titan also buys a product that makes money when the stock market goes down, and gives different amounts of that to each investor based on their risk tolerance. While it is possible to buy downside protection in small amounts, I assume that Titan essentially buys it wholesale and splits it up among its investors, rather than going to the market and buying small amounts with a separate transaction for each investor.
Seems to me that it simply buys 20 stocks plus the inverse S&P ETF (SH).
Their strategy looks highly overfitted in terms of establishing the short position.
It’s easy to beat the market in a bull market (just buy momentum stocks or use leverage). It’s hard to determine when the bull market ends and the bear market begins however, which is what’s required if the strategy can truly beat the index long term.
13F filings that they use are all public knowledge that has been priced in. Furthermore funds aren’t required to provide information on their short positions and derivatives, so I struggle to imagine that they can do anything beyond “these are top 20 institutionally owned stocks” weighted by past performance of those institutions, which in itself is not an indicator of future returns.
The average person is much better off putting their money in a whole market index fund that charges a tenth of a percent (or less) rather than a managed fund that charges 1%. The managed fund is unlikely to outperform the index fund in the long term.
I would go beyond that and say that the average person should use those retirement date targeted funds. Those are usually cheap and minimize risk towards your retirement date.
While that is what I have mostly done, the retirement date funds I have had access to tend to have significantly hire fees (sometimes close to double) compared to the index funds. Not sure their performance actually justifies it either.
Is this through a 401k or through individual IRA/investments accounts? If the latter, I'd suggest moving to a provider such as Vanguard, with very low expense ratios [1]. If through your 401k, I would suggest encouraging your employer to seek out options where you're not overcharged (preferably as a group of employees, as there is strength in numbers). Failing that, max out your 401k with just enough funds to obtain the full employer match, then fill your IRA(s), and then your taxable accounts.
Employer 401k, I think my current one is 0.39% for target 2055. I hate it, but doesn't seem to be interest in changing. I think I will push for it again soon though.
Even the Vanguard retirement funds though have expense rations that are multiples of the underlying funds, assuming you have enough cash to qualify for admiral shares of the underlying funds. But you get automatic rebalancing and lower minimums. 0.15% is low enough though that I don't personally worry about the difference that I'm not saving by switching to manually investing in the underlying funds.
There can be several large issues with target date funds.
1. Ignores income streams from things like social security, reverse mortgages, held away assets
2. Ignorant to future medical advances that could change life expectancy
3. Built on past assumptions of bond yields and interest rate levels
4. higher fees than an equity ETF
5. large discrepancies between each one
6. Bonds are not necessarily less risky than stocks. As yields drop, bond convexity is high, meaning the bond price will be very sensitive to interest rate changes
Not sure why you're being downvoted. None of these assertions are wrong.
I have many family members who still have big company pensions from back in the day and also own target date funds in their 401ks so combined with social security income they end up being massively over-allocated to bonds (a pension & SS can be treated as bonds).
I disagree. It's very unclear what strategy will work over the next 20 years. Many people are bullish on index funds because research has shown that they outperformed managed funds over the past 10-20 years. It doesn't mean they'll outperform over the next 20 years. Past results are no indication of future results.
Unless you have some kind of special insight, why would you not just go with the flows of the overall market and invest in index funds? Seems like a good default when all options are technically unknown.
You can't backtest a fund such as VTI. The issue is that these analysis don't take into factors such as volume. I'm sure if someone backtested $100MM investment in Bitcoin starting from 2010, the results would be spectacular, but we all know that buying pressure would've caused Bitcoin to skyrocket and the returns would be less than the backtested results.
I personally tell people to invest in index funds if they don't understand investing, but it doesn't mean it will do better than other options. Index funds are only a recent phenomenon.
The biggest issue with index funds at the moment is "group-think". If everyone in America is investing via index funds then when people need money, those same index funds will fall sharply. There is a valid line of thinking where one should avoid stocks with heavy exposure to index funds because those stocks will have the best returns during an equities downturn.
If the fund is really that good, they'll take x% of the profits and not charge a fee on capital. You take capital because you're not really that good, and you don't know (like basically everyone else) what's going to happen.
Funds know they can't reliably beat the market, and thus don't offer such structures.
I want a ratcheting fee structure. No capital fees, and no fee if the fund loses compared to its benchmark. The fund only makes money if it beats the benchmark.
That would be awesome as an investor, but is that actually sustainable? I guess if the benchmark looses money, and they loose less they get to take a % of something? But they you are paying them for having lost money? Seems odd. I think I don't mind a minimum fixed %. Though as you say, 1% is pretty high still.
> I guess if the benchmark looses money, and they loose less they get to take a % of something? But they you are paying them for having lost money? Seems odd.
I don't see a problem with it. This scenario, like negative interest rates, or negative electric rates [1], may be counterintuitive and seem odd, but it makes sense if you think about it.
I'd be paying them for losing less money that I would have otherwise, and "losing less" is just another way of saying "gaining more".
[1] Discussed recently on HN in the context of wind turbines in Europe, IIRC
It is pretty competitive compared to most other actively managed funds. Hedge funds sometimes take incredible performance fees, advisory fees, etc. They can amount to 2-4% off the top.
Not saying I agree with it, but it is well priced for the space.
If the fund is really good, they take 2% of the capital and 20% of the profits... (Actually if the fund is really good it's closed to outside investors, so it doesn't really matter.) But of course if a fund is really good it's not just a portfolio of 20 hedge-fund darlings rebalanced quarterly.
I don't know how do they select the 20 names from hedge fund filings (looking only at their long positions, as they don't disclose short positions), but it seems that diversification is not one of the criteria. Virtually all of them are tech (IT/Telecom).
The 0-20% short (using inverse ETFs! [1]) is inactive, so no hedge at all currently on this overexposed portfolio. If (when) there is a large correction it may not be enough to ensure the loses are lower than for the market even assuming that they do it in time (surely it worked well in the backtests).
But hey, it's just 1% and runs (only) on your iPhone!
[1] They track the inverse performance well each day but can diverge over longer periods and have other risks that make them not-so-good as hedges. But anyway is just 20% of the long exposure...
One newer fee structure to emerge on the endowment side is the 1-or-30 structure, which tries to incentivize managers when they outperform, but also allows managers to keep the lights in an underperforming period.
On the retail side, I'm sure using incentive fees is compelling to some potential clients. However, from a compliance perspective, offering a performance-based fee is thought to be operationally difficult. Incentive fee structures with high watermarks or hurdles are not trivial to calculate or grasp. As recently as the 80's, I believe incentive fee structures were outright illegal to offer to non-qualified investors. This is why fees typically are a percentage of assets.
I think you are misunderstanding what many (maybe most) funds actually say they are offering. The investment is often positioned as an asset class with low correlation to other asset classes. Whether they actually offer this or not is a different story but many funds are not out promising to beat the S&P 500 every year. Indeed if you look at something like REIF from RenTech they are trying to offer lower volatility than investing the index itself.
It should be noted that many (if not all) investors in hedge funds already own significant diversified stock holdings. They likely already own other asset classes with less correlation to the stock market like certain types of real estate.
Just to pick a practical example from recent headlines. Elliott Management undoubtedly points out to potential investors that buying sovereign debt and litigating defaults has little correlation with the S&P 500. So when is building a truly diversified global portfolio an allocation to hedge funds (or PE or VC) is often looked at through the lens of correlation, and not necessarily absolute return relative to the S&P 500.
Their advertising material points out their performance compared to the S&P500, and makes no mention of correlation. I don't think that this typical benefit of a hedge fund is what they're trying to sell. It seems to be a "beat the market with a shiny app" kind of pitch.
Considering they are going after very small investors, I don't think their target customer has much in the way of investments, better yet diversified ones, and probably knows even less about large scale asset management.
Seems like a classic risk vs return scenario. If the return is that much higher than the S&P 500, then the risk associated with it will also be higher. I think the risk vs return is better balanced when you put your money in an ETF in Vanguard especially since there low fees and "choices" for particular markets.
Both the article and https://www.titanvest.com/performance/ cite performance relative to S&P 500. If you expand out disclosures it says "Figures cited for 2017 and since 2004 represent backtested performance of a hypothetical account using Titan’s investment process, not an actual amount." It's trivial to overfit a backtest to get whatever results you want. For a startup whose objective is to "enable you to become a better investor" they might want to start by explaining why you shouldn't take their performance page seriously.
yep and it makes this statement rather suspicious:“Of the ~3500+ hedge funds out there, we track ~5% of them. We believe these are the good guys: long-term oriented and rigorous in their research.”
Its the 5% that performed well in their backtest, but that doesnt mean they will perform the best going forward.
What Titan did in 2016 was chose the top 5% of funds that did well up until that point. Then when they saw it performed bad in 2017, they most likely went back and chose a different 5% that did better. And recalculated all the returns.
The problem is you cant keep doing this once you actually start investing with real money.
As others have mentioned, ~95% of people should only invest in index funds. They are wasting their money if they actively manage it or put it into a managed fund.
The value add of a hedge fund is its sophisticated research. Hedge funds have analysts who are looking at satellite images showing the number of cars in parking lots to determine whether sales at Best Buy are up this year, PhDs creating ML models that incorporate behavioral finance, that sort of thing.
It seems like Titan operates in a space directly between these two business models - higher fees without the sophisticated research. Its return over the past year is promising, but you can't really evaluate the performance over such a short time frame. I'm very skeptical, but hoping to be proved wrong.
>What Robinhood did to democratize buying individual stocks, Titan wants to do for investing in a managed portfolio.
huh? RH's success comes from letting people play wall street hot shot trader for free. "OMG did you hear what Musk just said?".
If they think they're capturing the same kind of audience attention with a managed portfolio then they legit don't know which way is up.
>Titan picks the top 20 stocks based on data mined from the most prestigious hedge funds
That's index ETF thinking. The real hedge funds invest in opportunities that aren't even listed. You don't make hedge fund type return without hardcore research & hardcore risk taking on the basis of that research.
The whole "hedge fund" thing might make for decent initial PR but I predict this will backfire when people don't get the immediate visceral return they expected. Acorn's "Invest & grow" type PR slogans are better if you are going for managed because it'll align with the return.
If you ever find yourself questioning the validity of all the studies indicating how terrible retail investors are at investing...read r/wallstreetbets and realize you and your index funds are still in the minority.
>and realize you and your index funds are still in the minority.
Quite the opposite. Index fund are busy eating the world alive.
If you've got massive money flowing into the top 100 in the index thanks to ETFs the smart money is on companies 101 - 120. Similar risk profiles to the top 100 but their price earnings profile hasn't been distorted yet but the wave of incoming index wave.
Passive is indeed the truth but don't swallow it wholesale...you're just buying into a top 100 self-reinforcing bubble that has no economic backing without realising it.
I'd hardly call that "eating the world alive." The only thing its eating so far is the absurd wealth management fees old school financial advisors used to make.
Also there's about 200 different indexes all slicing up the marketplace in various ways. Not every investor is buying the large cap, cap-weighted index (although most are).
Ultimately, this idea of passive "distorting" the markets just isn't true (also I'm not sure what you mean by "earnings profile"...earnings are set by consumer demand for a company's product, not investor demand for company stock). Active traders set prices, indexes simply follow the prices set by active traders. We are no where near the point where distortions would happen, and if we ever got to that point, there would be massive incentive to profit off of a easily predictable mispricing.
I hope they aren't just using 13Fs to determine hedgefund holdings. I saw one being filed recently and I was amazed at how useless they are for determining a funds actual positions.
You don't need to report short positions. This resulted in many scenarios where we were short a company, but from our filings, it looked like we were long. 3 examples:
- Class A and B shares. If you are long one and short the other, only the long shows up.
- Own the stock, but sold calls? Don't need to report the calls. Plus, options that are reported are done so as if they are fully exercisable.
- Debt, Convertible debt, and types of warrants and other instruments are not reported.
Agree 100% with this. 13Fs are not indicative of most HFs actual bets. Especially if they are running strategies where a bet consists of a bundle of securities (Eg convert arbitrage).
Also, Given delay in reporting, you’d just be getting in after they get in and likely they get out before you do. So the aggregate impact costs from this strategy becomes their alpha. Hence why some of these LS guys always talk up their positions.
Agree with the second. Making money in stocks is not just what to invest in, but when.
If you bought FB in the beginning of July just after a hedge fund reported it (but they actually bought in April and sold in July) that would have been bad for you.
> while using an app to cut out the costs of pricey brokers and Wall Street offices.
Unless they have DMA themselves, alongside their own order/execution platform, I would suspect that a broker still exists who may well be in a wall street office? And god damn if you think 1% is "cheap" for this (not-very) smart beta strategy you need your head examined
Please don't stock pick based on what some app tells you some other people in finance have probably stock picked.
If you believe in active management. Pay an active manager. If you believe in passive investing, buy an index. If you believe in smart beta, pay a little bit more for a properly defined strategy which fits your world view. This is none of those things.
[Past Performance Is No Guarentee Of Future Success]
55 comments
[ 4.0 ms ] story [ 115 ms ] thread[1] https://cdn.titanvest.com/library/Titan_Investor_Materials.p...
I could definitely not be understanding what they are saying, but it does say they are not pooling.
https://www.titanvest.com/faq/
From the article it looks like Titan buys 20 stocks, and every Titan investor gets the same stocks in the same proportions, in an amount determined by how much they invested. The "hedging" part is that Titan also buys a product that makes money when the stock market goes down, and gives different amounts of that to each investor based on their risk tolerance. While it is possible to buy downside protection in small amounts, I assume that Titan essentially buys it wholesale and splits it up among its investors, rather than going to the market and buying small amounts with a separate transaction for each investor.
Their strategy looks highly overfitted in terms of establishing the short position.
It’s easy to beat the market in a bull market (just buy momentum stocks or use leverage). It’s hard to determine when the bull market ends and the bear market begins however, which is what’s required if the strategy can truly beat the index long term.
13F filings that they use are all public knowledge that has been priced in. Furthermore funds aren’t required to provide information on their short positions and derivatives, so I struggle to imagine that they can do anything beyond “these are top 20 institutionally owned stocks” weighted by past performance of those institutions, which in itself is not an indicator of future returns.
[1] https://investor.vanguard.com/mutual-funds/profile/VTIVX (example fund, Vanguard Target Date 2045 fund, 0.15% expense ratio)
1. Ignores income streams from things like social security, reverse mortgages, held away assets
2. Ignorant to future medical advances that could change life expectancy
3. Built on past assumptions of bond yields and interest rate levels
4. higher fees than an equity ETF
5. large discrepancies between each one
6. Bonds are not necessarily less risky than stocks. As yields drop, bond convexity is high, meaning the bond price will be very sensitive to interest rate changes
I have many family members who still have big company pensions from back in the day and also own target date funds in their 401ks so combined with social security income they end up being massively over-allocated to bonds (a pension & SS can be treated as bonds).
According to John Bogle, this has been true for over 100 years. His analysis goes back to 1900.
I personally tell people to invest in index funds if they don't understand investing, but it doesn't mean it will do better than other options. Index funds are only a recent phenomenon.
The biggest issue with index funds at the moment is "group-think". If everyone in America is investing via index funds then when people need money, those same index funds will fall sharply. There is a valid line of thinking where one should avoid stocks with heavy exposure to index funds because those stocks will have the best returns during an equities downturn.
http://theirrelevantinvestor.com/2017/08/31/today-in-market-...
Also, please tell me 1 of those better options?
The link you posted seems to take the opposite view from what you expressed. Batnick is very pro index funds.
The question is if you dont follow the passive ETF/index strategy what do you do? In that regard i suppose its better than doing nothing.
If the fund is really that good, they'll take x% of the profits and not charge a fee on capital. You take capital because you're not really that good, and you don't know (like basically everyone else) what's going to happen.
Funds know they can't reliably beat the market, and thus don't offer such structures.
I want a ratcheting fee structure. No capital fees, and no fee if the fund loses compared to its benchmark. The fund only makes money if it beats the benchmark.
I don't see a problem with it. This scenario, like negative interest rates, or negative electric rates [1], may be counterintuitive and seem odd, but it makes sense if you think about it.
I'd be paying them for losing less money that I would have otherwise, and "losing less" is just another way of saying "gaining more".
[1] Discussed recently on HN in the context of wind turbines in Europe, IIRC
Not saying I agree with it, but it is well priced for the space.
I don't know how do they select the 20 names from hedge fund filings (looking only at their long positions, as they don't disclose short positions), but it seems that diversification is not one of the criteria. Virtually all of them are tech (IT/Telecom).
The 0-20% short (using inverse ETFs! [1]) is inactive, so no hedge at all currently on this overexposed portfolio. If (when) there is a large correction it may not be enough to ensure the loses are lower than for the market even assuming that they do it in time (surely it worked well in the backtests).
But hey, it's just 1% and runs (only) on your iPhone!
[1] They track the inverse performance well each day but can diverge over longer periods and have other risks that make them not-so-good as hedges. But anyway is just 20% of the long exposure...
https://www.institutionalinvestor.com/article/b1505qmcspbw8p...
On the retail side, I'm sure using incentive fees is compelling to some potential clients. However, from a compliance perspective, offering a performance-based fee is thought to be operationally difficult. Incentive fee structures with high watermarks or hurdles are not trivial to calculate or grasp. As recently as the 80's, I believe incentive fee structures were outright illegal to offer to non-qualified investors. This is why fees typically are a percentage of assets.
I personally wouldn't go for it at any price, but if you want to, there's no reason to overpay.
It should be noted that many (if not all) investors in hedge funds already own significant diversified stock holdings. They likely already own other asset classes with less correlation to the stock market like certain types of real estate.
Just to pick a practical example from recent headlines. Elliott Management undoubtedly points out to potential investors that buying sovereign debt and litigating defaults has little correlation with the S&P 500. So when is building a truly diversified global portfolio an allocation to hedge funds (or PE or VC) is often looked at through the lens of correlation, and not necessarily absolute return relative to the S&P 500.
Their advertising material points out their performance compared to the S&P500, and makes no mention of correlation. I don't think that this typical benefit of a hedge fund is what they're trying to sell. It seems to be a "beat the market with a shiny app" kind of pitch.
Considering they are going after very small investors, I don't think their target customer has much in the way of investments, better yet diversified ones, and probably knows even less about large scale asset management.
https://en.wikipedia.org/wiki/Separately_managed_account
Its the 5% that performed well in their backtest, but that doesnt mean they will perform the best going forward.
What Titan did in 2016 was chose the top 5% of funds that did well up until that point. Then when they saw it performed bad in 2017, they most likely went back and chose a different 5% that did better. And recalculated all the returns.
The problem is you cant keep doing this once you actually start investing with real money.
It helps to be overly skeptical when anyone claims to beat the index. Because it is such a powerful claim.
As others have mentioned, ~95% of people should only invest in index funds. They are wasting their money if they actively manage it or put it into a managed fund.
The value add of a hedge fund is its sophisticated research. Hedge funds have analysts who are looking at satellite images showing the number of cars in parking lots to determine whether sales at Best Buy are up this year, PhDs creating ML models that incorporate behavioral finance, that sort of thing.
It seems like Titan operates in a space directly between these two business models - higher fees without the sophisticated research. Its return over the past year is promising, but you can't really evaluate the performance over such a short time frame. I'm very skeptical, but hoping to be proved wrong.
huh? RH's success comes from letting people play wall street hot shot trader for free. "OMG did you hear what Musk just said?".
If they think they're capturing the same kind of audience attention with a managed portfolio then they legit don't know which way is up.
>Titan picks the top 20 stocks based on data mined from the most prestigious hedge funds
That's index ETF thinking. The real hedge funds invest in opportunities that aren't even listed. You don't make hedge fund type return without hardcore research & hardcore risk taking on the basis of that research.
The whole "hedge fund" thing might make for decent initial PR but I predict this will backfire when people don't get the immediate visceral return they expected. Acorn's "Invest & grow" type PR slogans are better if you are going for managed because it'll align with the return.
For the record though wsb will judge 99% of RH to be peasant grade though - PTD rule and insufficient options yolo
Quite the opposite. Index fund are busy eating the world alive.
If you've got massive money flowing into the top 100 in the index thanks to ETFs the smart money is on companies 101 - 120. Similar risk profiles to the top 100 but their price earnings profile hasn't been distorted yet but the wave of incoming index wave.
Passive is indeed the truth but don't swallow it wholesale...you're just buying into a top 100 self-reinforcing bubble that has no economic backing without realising it.
https://www.reuters.com/article/us-funds-blackrock-passive/l...
I'd hardly call that "eating the world alive." The only thing its eating so far is the absurd wealth management fees old school financial advisors used to make.
Also there's about 200 different indexes all slicing up the marketplace in various ways. Not every investor is buying the large cap, cap-weighted index (although most are).
Ultimately, this idea of passive "distorting" the markets just isn't true (also I'm not sure what you mean by "earnings profile"...earnings are set by consumer demand for a company's product, not investor demand for company stock). Active traders set prices, indexes simply follow the prices set by active traders. We are no where near the point where distortions would happen, and if we ever got to that point, there would be massive incentive to profit off of a easily predictable mispricing.
You don't need to report short positions. This resulted in many scenarios where we were short a company, but from our filings, it looked like we were long. 3 examples:
- Class A and B shares. If you are long one and short the other, only the long shows up.
- Own the stock, but sold calls? Don't need to report the calls. Plus, options that are reported are done so as if they are fully exercisable.
- Debt, Convertible debt, and types of warrants and other instruments are not reported.
So don't use them to determine a fund's thinking.
Also, Given delay in reporting, you’d just be getting in after they get in and likely they get out before you do. So the aggregate impact costs from this strategy becomes their alpha. Hence why some of these LS guys always talk up their positions.
If you bought FB in the beginning of July just after a hedge fund reported it (but they actually bought in April and sold in July) that would have been bad for you.
Unless they have DMA themselves, alongside their own order/execution platform, I would suspect that a broker still exists who may well be in a wall street office? And god damn if you think 1% is "cheap" for this (not-very) smart beta strategy you need your head examined
Please don't stock pick based on what some app tells you some other people in finance have probably stock picked.
If you believe in active management. Pay an active manager. If you believe in passive investing, buy an index. If you believe in smart beta, pay a little bit more for a properly defined strategy which fits your world view. This is none of those things.
[Past Performance Is No Guarentee Of Future Success]