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 the Titan investment team believes our strategies are undergoing or have high risk of undergoing an extended downturn. The degree of hedge increases during a downturn and decreases when the downturn ceases, as determined by Titan's investment team.
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 investment team determines we are 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 investment team determines we are 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.
For Titan Flagship, we use an inverse S&P 500 ETF as your hedging vehicle. It increases in value specifically when the S&P 500 market index declines. It acts as a hedge by reducing your portfolio's overall exposure ("beta") to the market.
Similarly, for Titan Opportunities, we use an inverse Russell 2000 ETF as your hedging vehicle, which increases in value specifically when the Russell 2000 market index declines.
For Titan Offshore, we use an inverse MSCI Emerging Markets ETF as your hedging vehicle, which increases in value specifically when the MSCI Emerging Markets index declines.
New Titan clients are hedged according to their risk profile at the time of account opening. Risk profiles may be updated anytime thereafter. Changes in risk profiles are immediately reflected in the level of hedge applied to a client's incremental deposits/withdrawals thereafter, but the client's existing portfolio's level of hedge is not updated until the subsequent portfolio stock update (typically quarterly).
Frequency of Hedge Evaluation
We typically evaluate the hedge criteria once per month, on the final day of each calendar month after U.S. equity markets close. Therefore, the hedge is generally toggled between active/inactive at most once per month. However, we reserve the right to adjust our hedge activation (on/off) based on our Research team's qualitative judgement complementing our quantitative criteria.
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 subsequent portfolio update.
If your financial situation changes such that you change your investment style / risk profile, the new hedge level will not apply to your existing portfolio or ongoing investments until the next portfolio update in the subsequent calendar-year quarter following that change in investment style. For example, if you changed your risk profile from Aggressive to Conservative on October 10th, the new higher hedge level would not apply until the next portfolio update in the following quarter (e.g., Q1 or January-March) at the earliest, not in the current quarter Q4.
Your investment style as of each portfolio update date will dictate the degree of hedge applied to your portfolio during that portfolio update/rebalancing. 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 team determines we are in a downturn, clients will have a portion of their Portfolio Values sold (in equal weights across the Flagship and Opportunities portfolios) 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.