Objective of Hedging
When your portfolio declines for an extended period of time, you should be protected. It's called a hedge, and it can help reduce the risk of your portfolio and stem losses during tumultuous periods.
We automatically hedge your personalized portfolio using a hedging vehicle. You don't have to do anything at all - just sit back. The hedge is applied dynamically based on when your Titan portfolio enters a downturn; the degree of hedge increases when your portfolio enters a downturn and decreases when the downturn ceases.
We personalize your level of hedge based on the risk profile derived from the questions you answer when you sign up for Titan. The more conservative you are, the greater the hedge.
By providing this hedge, we aim to mitigate material drawdowns in your portfolio which can be especially harmful to long-term compounded equity returns.
Mapping of Risk Profile to Hedge
The following breakdown shows the various level of hedging based on your personalized risk profile.
When the Titan portfolio is NOT in a downturn:
- Aggressive: 0% of portfolio value is hedged
- Moderate: 5% of portfolio value is hedged
- Conservative: 10% of portfolio value is hedged
When the Titan portfolio is in a downturn:
- Aggressive: 5% of portfolio value is hedged
- Moderate: 10% of portfolio value is hedged
- Conservative: 20% of portfolio value is hedged
There are many different types of hedges available in the market. At Titan, we use an inverse S&P 500 ETF as your hedging vehicle. It increases in value specifically when the S&P 500, a market proxy, declines. It acts as a hedge by reducing your portfolio's overall exposure ("beta") to the market.
Risk profiles may be updated once a quarter. Hedges are based on the risk profiles that are in place as of 4:00pm Eastern Standard Time the final day of the month prior to portfolio rebalancing (January 31, April 30, July 31, October 31). New Titan clients who become clients after these times will be hedged according to their risk profile at the time of account opening.
What is a Portfolio Downturn?
We define a portfolio downturn as when the Titan portfolio's trailing 12-month return falls below the average cumulative return of the S&P 500 over the trailing 12-month period. It is effectively a "momentum hedge."
Frequency of Hedge Evaluation
We evaluate the hedge criteria once per month, on the final day of each calendar month after U.S. equity markets close at 4:00pm Eastern Standard Time. Therefore, the hedge is automatically toggled between active/inactive at most once per month.
Updating your Financial Profile
When your personal financial situation changes, such as your income, net worth, investment horizon, investment experience, etc., you should update your financial profile in the Titan app. This enables us to continue personalizing your investment portfolio to suit your individual needs and goals.
You can update your financial profile any time in the app. However, note that once the Titan portfolio enters a downturn, a change in your financial profile will only dictate a change in your degree of hedging (as described in the Mapping section above) at the quarterly portfolio rebalance date.
For example, if your financial situation changes such that you go from a Conservative investment style (20% hedge) to a Moderate investment style (10% hedge), the change in hedge will be made at the next quarterly rebalance date following that change in investment style.
Your investment style as of 4:00pm Eastern Standard Time on the final day of the calendar month preceding the quarterly rebalance date will dictate the degree of hedge applied to your portfolio at the quarterly rebalance date. In other words, based on your investment style as of the U.S. equity market close on January 31, April 30th, July 31st, and October 31st, your hedge will be rebalanced to match that investment style at the quarterly rebalance dates in mid-February, mid-May, mid-August, and mid-November, respectively.
We do not advise that you change/update your financial profile and/or investment style unless there is a change in your personal financial situation.
Allocation between Titan Portfolio and Hedge
When the Titan portfolio enters a downturn, clients will have a portion of their Portfolio Values sold (in equal weights across the 20-stock Titan Portfolio) and reallocated to the hedge instrument, based on their personalized risk profiles as explained above.
For full disclaimers and additional details regarding the Hedging process at Titan, please see the Disclaimer on your hedge's description page in the mobile app.
Disclaimer: We believe the hedge can help mitigate losses on the Titan portfolio during periods of volatility. However, there is no guarantee that any or all losses will be mitigated by this hedge.