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Titan launches its mobile ‘not a hedge fund’

44 points by akrymski 8y ago

Bedon292 8y ago
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?
- freeone3000 8y ago
  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.
  - Bedon292 8y ago
    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.
    - freeone3000 8y ago
      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. [1] https://cdn.titanvest.com/library/Titan_Investor_Materials.pdf https://cdn.titanvest.com/library/Titan_Investor_Materials.p...
      - Bedon292 8y ago
        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. https://www.titanvest.com/faq/ https://www.titanvest.com/faq/
- yellowstuff 8y ago
  You seem to be using the term "hedging"(https://www.investopedia.com/terms/h/hedge.asp https://www.investopedia.com/terms/h/hedge.asp) but describing something more like "diversification (https://www.investopedia.com/terms/d/diversification.asp https://www.investopedia.com/terms/d/diversification.asp). 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.
- akrymski 8y ago
  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.
MrMember 8y ago
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.
- wyldfire 8y ago
  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.
  - Bedon292 8y ago
    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.
    - toomuchtodo 8y ago
      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. [1] https://investor.vanguard.com/mutual-funds/profile/VTIVX https://investor.vanguard.com/mutual-funds/profile/VTIVX (example fund, Vanguard Target Date 2045 fund, 0.15% expense ratio)
      - Bedon292 8y ago
        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.
Hasz 8y ago
1% of capital every year is crazy money. 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.
- Bedon292 8y ago
  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.
  - mmt 8y ago
    > 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
    - Hasz 8y ago
      Hey, just so you know, the link to your resume in the bio is misspelled, leading to a deadlink.
      - mmt 8y ago
        Thanks! Obviously a typo, since the keys are adjacent on a qwerty keyboard, but why I would have ever typed it instead of copy-pasting is beyond me.
paultudorjones 8y ago
They are just a "Separately Managed Accout" as service. https://en.wikipedia.org/wiki/Separately_managed_account https://en.wikipedia.org/wiki/Separately_managed_account
syntaxing 8y ago
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.
theycallhimtom 8y ago
Both the article and https://www.titanvest.com/performance/ 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.
- AznHisoka 8y ago
  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.
  - norswap 8y ago
    Do you have any evidence for any of this, or did you just pick the most uncharitable possible scenario and present it as factual?
    - AznHisoka 8y ago
      This is just all theory, of course but this is something most backtesters do, so I wouldnt rule it out. It helps to be overly skeptical when anyone claims to beat the index. Because it is such a powerful claim.
      - neonate 8y ago
        You said "What Titan did". That's a far cry from "I wouldn't rule it out".
gringoDan 8y ago
I don't see a clear value proposition here. 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.
Havoc 8y ago
>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.
- kgwgk 8y ago
  reddit.com/r/wallstreetbets gives a good idea of where Robinhood's success is coming from.
  - Havoc 8y ago
    Yes that's the idea I wanted to convey. For the record though wsb will judge 99% of RH to be peasant grade though - PTD rule and insufficient options yolo
  - chkdsk 8y ago
    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.
    - Havoc 8y ago
      >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.
htrp 8y ago
It's basically a mutual fund?
turingcompeteme 8y ago
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. So don't use them to determine a fund's thinking.
- exHFguy1 8y ago
  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.
  - AznHisoka 8y ago
    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.
Ntrails 8y ago
> 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]

44 points by akrymski 8y ago

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?

freeone3000 8y ago
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.
- Bedon292 8y ago
  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.
  - freeone3000 8y ago
    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. [1] https://cdn.titanvest.com/library/Titan_Investor_Materials.pdf https://cdn.titanvest.com/library/Titan_Investor_Materials.p...
    - Bedon292 8y ago
      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. https://www.titanvest.com/faq/ https://www.titanvest.com/faq/
yellowstuff 8y ago
You seem to be using the term "hedging"(https://www.investopedia.com/terms/h/hedge.asp https://www.investopedia.com/terms/h/hedge.asp) but describing something more like "diversification (https://www.investopedia.com/terms/d/diversification.asp https://www.investopedia.com/terms/d/diversification.asp). 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.
akrymski 8y ago
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.

MrMember 8y ago

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.

wyldfire 8y ago
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.
- Bedon292 8y ago
  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.
  - toomuchtodo 8y ago
    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. [1] https://investor.vanguard.com/mutual-funds/profile/VTIVX https://investor.vanguard.com/mutual-funds/profile/VTIVX (example fund, Vanguard Target Date 2045 fund, 0.15% expense ratio)
    - Bedon292 8y ago
      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.

Hasz 8y ago

1% of capital every year is crazy money. 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.

Bedon292 8y ago
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.
- mmt 8y ago
  > 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
  - Hasz 8y ago
    Hey, just so you know, the link to your resume in the bio is misspelled, leading to a deadlink.
    - mmt 8y ago
      Thanks! Obviously a typo, since the keys are adjacent on a qwerty keyboard, but why I would have ever typed it instead of copy-pasting is beyond me.

paultudorjones 8y ago

They are just a "Separately Managed Accout" as service. https://en.wikipedia.org/wiki/Separately_managed_account https://en.wikipedia.org/wiki/Separately_managed_account

syntaxing 8y ago

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.

theycallhimtom 8y ago

Both the article and https://www.titanvest.com/performance/ 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.

AznHisoka 8y ago
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.
- norswap 8y ago
  Do you have any evidence for any of this, or did you just pick the most uncharitable possible scenario and present it as factual?
  - AznHisoka 8y ago
    This is just all theory, of course but this is something most backtesters do, so I wouldnt rule it out. It helps to be overly skeptical when anyone claims to beat the index. Because it is such a powerful claim.
    - neonate 8y ago
      You said "What Titan did". That's a far cry from "I wouldn't rule it out".

gringoDan 8y ago

I don't see a clear value proposition here. 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.

Havoc 8y ago

>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.

kgwgk 8y ago
reddit.com/r/wallstreetbets gives a good idea of where Robinhood's success is coming from.
- Havoc 8y ago
  Yes that's the idea I wanted to convey. For the record though wsb will judge 99% of RH to be peasant grade though - PTD rule and insufficient options yolo
- chkdsk 8y ago
  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.
  - Havoc 8y ago
    >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.

htrp 8y ago

It's basically a mutual fund?

turingcompeteme 8y ago

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. So don't use them to determine a fund's thinking.

exHFguy1 8y ago
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.
- AznHisoka 8y ago
  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.

Ntrails 8y ago

> 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]