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Titan Review: Invest Like a World-Class Hedge Fund for $500

Last Updated on August 8, 2019 Last Updated on August 8, 2019
Simply Put: Titan Invest is a mobile app letting investors gain access to the elite world of hedge funds for $500. Technically, they're not a fund, but an SEC-Registered Investment Advisor. They use enhanced algorithmic software to analyze thousands of data points and determine which companies to include in their professionally-managed portfolio. Portfolios hold 20 stocks and are rebalanced every quarter. They're backed by Y-Combinator and are helping over 5,000 customers manage more than $25M in assets.

Pros:

  • Low $500 minimum balance requirement
  • Stock selection focused on value-oriented, high-quality businesses
  • Hedging uses an Inverse S&P 500 ETF
  • Investors are direct owners of their portfolio

Cons:

  • Limited account types
  • Limited exposure to domestic equities only

Before there was Netflix, I had to rent movies at my local video store. It was a thrill. I’d score a few bucks from my folks and be out the door, peddling my rusty yellow Schwinn over to American Video.

I’d stroll through every genre from comedy to action to horror. Pure joy. A world of movies at my fingertips. But there was one section I wasn’t allowed, and the sign above it read: adults only.

It was guarded by a red velvet curtain – and the lady at the counter with the charcoal-colored, painted-on eyebrows.

What’s this? No access for this 12-year-old? But I’m curious!

Ordinary investors trying to gain access to a $100 million hedge fund is like a 12-year-old trying to gain access to the adults only section at the video store. You might be curious, but you ain’t getting in.

Titan Invest wants to change that (the part about letting ordinary investors gain access to hedge fund investing practices, not the part about allowing kids into the adults only section at your local video store).

I’m going to show you the investment strategies practiced at Titan, how a hedge fund works, the best way to park your cash with them, and a whole lot more.

Grab something inebriating and let’s get reading!

Birds Eye View

Titan is a mobile investing app that allows anyone to invest like a world-class hedge fund. You can get started today for just $500. They’re backed by Y Combinator and are now helping over 5,000 individuals manage over $25M in assets.

Costs:

  • Minimum investment of $500
  • 1% flat advisory fee
  • No performance fees, trading fees, electronic statement fees, and all deposits and withdrawals are free.

Mobile app:

  • iOS
  • Android

Portfolio:

  • 20 U.S. Stocks

Account Types:

  • Individual taxable accounts with plans to launch Traditional IRAs, Roth IRAs, and Rollovers this summer 2019

Availability:

  • U.S. investors only

What’s A Hedge Fund?

Hedge funds work when you get a group of ultra-wealthy investors to pool their money together. The required minimum investment is usually in the high six or low seven-figures. Mucho dinero.

Hedge funds average ~10 employees:

  • 1 Portfolio Manager/Hedge Fund Manager
  • 1 Chief Operating Officer
  • 1 Head Trader
  • 3 Senior Investment Analysts
  • 3 Junior Investment Analysts

A hedge fund team has two parts:

  • The front office pros who analyze potential investment ideas and manage the portfolio
  •   The back office operational crew responsible for keeping the lights on

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Hedge funds place high-quality bets both for and against the market. The ones for the market are known as “long,” the ones against are “short.” The difference between the two is your “net exposure.”

In Titan’s words, “Most funds are what we call ‘net long.’ That means the dollars they’ve invested in their long holdings is greater than the amount they’re shorting. When a fund is ‘net long’ stocks, it usually suggests a bullish view on the markets over the long term. Most funds are net long.”

A hedge fund typically invests in baskets of “winning businesses (aka stocks).” Once the research is complete, a valuation process takes place where the team decides how much that business is worth.

The goal is to determine whether a stock is underpriced vs. its true intrinsic value. Quality company + attractive valuation = quality investment. – Titan Invest

Investors in a hedge fund assume greater risk for potentially higher returns. Titan operates like a hedge fund – betting on the top picks while also betting against the market (Titan bets against the S&P 500).

***These advanced trading practices are best left to accredited investors like Titan, who can handle the stock market’s volatility.

Titan Invest Titan Invest is a mobile app that gains you access to the world of hedge fund investing for $500. Backed by Y-Combinator, they've got over 5,000 customers and manage over $25M in assets. Start Investing Titan Invest

Titan’s Performance

According to Titan’s website, their imaginary client assuming an aggressive risk profile who joined January 1, 2019, would have a 17% return versus a 10.7% return from the S&P 500 as of May 31, 2019.

Those same returns also had a Sharpe Ratio that was higher than the S&P 500.

***See full performance disclosures at end of this post and on Titan’s website

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***The Sharpe Ratio is a statistic combining an element’s return and risk (return divided by risk or Return/Risk). The ideal investment carries a high return with low risk (volatility).

For example, strategy A produces a 10 percent return with 30 percent volatility, and strategy B produces the same return with 50 percent volatility, strategy A wins because it’s the same return with lower risk.

.10/.30 = .33 Sharpe Ratio versus  .10/.50 = .20 Sharpe Ratio

The higher .33 Sharpe Ratio wins and is the superior investment.

In a nutshell…

Titan was able to offer its hypothetical client better returns than the S&P 500 for each unit of risk taken.

For those wanting to take a deep dive on Sharpe Ratios, Smart Beta, and Risk Parity read chapter 11 from A Random Walk Down Wall Street by Burton Malkiel

How Titan Invest Works: The Investment Process

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Every quarter, institutional investment managers with $100 million or more in assets under management (AUM), must submit their 13F filings to the U.S. Securities and Exchange Commission (SEC). This is a public report disclosing their U.S. equity holdings, insights, and precisely what they’re doing with their money.

Titan uses enhanced algorithmic software to determine which stocks are worth buying. In their words, “It’s difficult for most humans to synthesize all the data into a sensible portfolio strategy.”

When distilling this information, there are certain businesses (aka stocks) that tend to have overlapping characteristics. Titan looks for these patterns and picks the cream of the crop (~5% of the 3,500) which make up your portfolio.

Specific criteria considered for a Titan portfolio:

  • Excellent management with a track record of integrity
  • Long-term investors with low turnover
  • A concentration of funds making “punch card” bets

This expression comes from Warren Buffett when he said, “If you were given a punch card with 20 ticks on it, and those were the only investment decisions you could make throughout your entire career, how would you use them? You would likely be very selective and probably very rich. This type of mentality will force you to be patient.”

  • Long-focused, domestic equity holdings with growth potential

Titan puts domestic, high-quality businesses under the microscope. Once they’ve analyzed the data, they pick the top 20 and put them in your portfolio. Every investor has the same 20 stocks.

Why Only 20 Stocks?

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They use 20 stocks because you’re neither increasing returns nor reducing risk at this point. Titan offered a quote from legendary investor Burton Malkiel (the guy I referenced earlier who wrote the classic investment book A Random Walk Down Wall Street) to this question:

“By the time the portfolio contains close to 20 equal-sized and well-diversified issues, the total risk (standard deviation of returns) of the portfolio is reduced by 70 percent. Further increase in the number of holdings does not produce any significant further risk reduction.”

Fractional Shares

Titan isn’t a fund; they’re an SEC-registered investment advisor that buys and manages investments on your behalf. Your portfolio is equally weighted across 20 U.S. stocks through the use of fractional shares.

If you’ve only got $1,000 to invest, Titan splits that $1,000 20 ways. That’s the beauty of fractional shares. Your portfolio is divided equally.

Everything lives inside your brokerage account that you’re able to access anytime.

Rebalancing

Portfolios are rebalanced automatically every quarter. Once Titan has reviewed the latest 13F filings, they make their adjustments. Some stocks stay while others go. Only ones with the “highest conviction positions at the prior quarter’s end” remain.

Titan says the short-term capital gains tax implications for selling stocks is negligible in comparison to the benefits of its re-weightings.

Hedge Your Bets: What’s Your Risk Tolerance?

Hedging protects you against market declines. Remember, you’ve got two bets running simultaneously:

  • One with a bullish outlook on the market (or “long” – you want stocks to go up)
  • One where you “short” or bet against the stock market (bearish outlook that stocks will go down)

In a Titan portfolio, you’re allowed to short between 0-20% of the market based on your risk tolerance. You can choose to have an aggressive, moderate, or conservative risk profile.

How it works:

When your investment portfolio is not in a downturn:

  • Aggressive – 0% of your portfolio value is hedged
  • Moderate – 5% of your portfolio value is hedged
  • Conservative – 10% of your portfolio value is hedged

When your portfolio is in a downturn:

  • Aggressive – 5% of its value is hedged
  • Moderate – 10% of its value is hedged
  • Conservative – 20% of its value is hedged

All equities will be sold in equal value across all 20 stocks with proceeds of your sales reallocated to the hedge position.

Screenshot 2019 06 11 12.55.00

The hedge is applied when your portfolio hits a market decline. The degree of the hedge increases when your portfolio hits a snag and decreases when it improves. The more conservative your risk tolerance, the greater the hedge.

Titan uses an Inverse S&P 500 ETF (exchange-traded fund) to combat dips in the market. The inverse ETF will increase in value when the S&P 500 takes a hit.

Risk profiles can be adjusted once a quarter when Titan rebalances your portfolio. Titan defines a 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’s effectively a momentum hedge.”

Is Titan A Hedge Fund?

No. Hedge funds pool their investors’ dollars together and everyone gets the same treatment. Titan differs by keeping your money in an individual account based on your risk tolerance and financial goals.

In their words:

“Titan invests you like an active manager, with the personalization of an advisor in your pocket.”

They’re an SEC-registered investment advisor – not a hedge fund.

Titan’s Mission

Titan appeals to investors looking for something more than a passively-managed, broad-based index fund or set-it-and-forget-it robo advisors like Wealthfront. The reason behind their low costs is similar to the way online savings banks offer higher APYs – they trim the fat.

We believe that everyone should have access to transparent, high-performance investing vehicles. We are on a mission to modernize active investment management for a new generation.

Costs are kept low by removing excess bonuses, pricey offices, manual compliance and account management; handing off the savings to investors.

They are:

“Democratizing the hedge fund experience for everyday investors.”

Titan’s Origin Story

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Titan was founded in February 2018 by co-founders Clayton Gardner, Joe Percoco, and Max Bernardy. Clay and Joe worked for hedge funds at Goldman Sachs and Cerberus Capital while Max was a software engineer with a patent in hedge fund software.

This experience equipped them with high-level hedge fund investing strategies that achieved exceptional returns for their clients.

Their focus then was the same as it is now:

Long-term investments and time horizon with an emphasis on high-quality businesses.

They didn’t like how ordinary investors were excluded from these strategies, so they set out to fix an imperfect system by:

  • Integrating technology
  • Providing customers with a user-friendly experience
  • Automating the entire process with algorithmic software and cutting costs

Strategies once reserved for the ultra-wealthy are now available to anyone with the $500 needed to open an account. Ordinary investors can now invest for pennies on the dollar for potentially higher returns.

Creating an Account

Getting started is easy. You’ll have to answer a few questions regarding your investment goals, time horizon, and risk tolerance.

After providing your name, date of birth, and social security, you’re set to fund your account.

Deposits, Withdrawals, and Transfers: No Lockups

Your money is available whenever you need it. Unlike hedge funds that freeze your funds for up to a year or more, Titan doesn’t have any lockups.

The required minimum investment is $500 and you can access your funds whenever you like (takes 2-4 business days). Adding funds is easy when linking an external bank account. There is a required minimum deposit amount of $100 (every deposit you make must be at least $100).

ACH transfers take 1-2 business days and once settled in your account, take an additional 1-2 business days before Titan invests your money. Wire transfers are also supported, but you’ll have to contact their support team to set one up.

Withdrawals take 2-4 business days. A minimum withdrawal amount of $100 is required. If you want to liquidate your full amount, Titan will take 1-2 business days to initiate the process and then 2-4 business days to withdraw your funds.

There’s a withdrawal holding period which says your funds must remain in your account for at least five trading days to deter money laundering and improve Titan’s risk management. If you want to withdraw money and your balance is only $500 you’ll have to close your account to support the required $500 minimum account balance.

Software Integration with Other Apps

Currently, you can integrate your account with Mint and Personal Capital. Titan also supports Intuit’s TurboTax through their partner Apex Clearing. You can use TurboTax Premiere to import your trade history.

Consolidated 1099 forms will be uploaded directly into your Turbo Tax account come tax time. Titan Invest also integrates with H&R Block’s tax software. If needed, CSV files of your trading activity can be downloaded directly through Apex. At this time, users aren’t able to integrate or download data to their Quicken account.

Is Titan Invest Safe?

Yes, your investment funds are safe. All data is encrypted using Secure Sockets Layer (SSL) and 256-bit encryption. Your money is SIPC insured up to $500,000, and your assets are held at Apex Clearing (a leading, third-party custodian in the fintech industry).

Promos and Perks

When you open an account and refer a friend who funds an account, Titan gives you a .25% advisory management discount. If you refer four friends, Titan waives your management fee. You’ll pay 0% advisory fees for as long as your account remains open. Seriously. Forever.

They're not spending money on marketing to grow; they're spending it on their customers' investing experience

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They’re not spending money on marketing to grow; they’re spending it on their customers’ investing experience. It’s their way of paying it forward.

Customer Support

You can contact Titan through their phone support team (848.222.3664), by email or through their app.

Screenshot 2019 06 10 13.29.52

They also have a strong social media presence. Their news outlet, The Feed, is an Instagram-inspired feature connecting millennials with the markets. Users also gain access to a personalized stream of videos, articles, and in-depth reports tailored to the stocks in their portfolio.

Screenshot 2019 06 10 13.31.32

This one comes from a Q1 “Thought of the Quarter” report. Titan takes an active role in teaching their community about how the investing process works and why they’re choosing the stocks in their portfolio.

Is Titan Invest Right For You?

If you’re looking for something more than a passively-managed index fund and want something a little more hands-on, Titan might make sense.

Pros

  • Cream of the crop stock selection of high-quality businesses
  • $500 minimum appeals to low net-worth investors
  • Hedging using an Inverse S&P 500 ETF (a simpler and more cost-efficient alternative to creating a margin account)
  • Excellent research center with real-time updates, deep dive reports, and videos
  • Investors are direct owners of their portfolios (as opposed to being shareholders of Titan Invest)
  • Low, flat 1% advisory fee (the services offered through Titan are normally reserved for the ultra-wealthy and come with a higher price tag. Investors gain access to their portfolio management at a fraction of the cost. Because this service has removed a lot of overhead they can reduce advisory fees and performance fees down from 2% and 20% respectively, to 1% and 0% performance fees)
  • Highly-liquid fund assets. Most hedge funds come with lockups, meaning your money is inaccessible for a year or more. Titan lets you access your cash anytime)
  • Referral program offers a 0.25% advisory fee discount for every friend who signs up and funds an account, potentially eliminating the 1% fee forever with only four referrals

Cons

  • Limited account selection (Individual taxable accounts although Titan did say they’ve got plans to implement IRAs this summer 2019)
  • Limited exposure (Domestic equities)
  • Only available to hedge fund investors with primary residence in the United States
  • Limited access through mobile app although they’ve said they’re working on a desktop version
  • Unproven track record. Titan launched in February 2018 and while off to a good start, still has to prove whether it will be an industry leader in this space

Final Thoughts

Titan Invest was created to fill the gap felt by individual investors wanting something more than passively managed mutual funds and ETFs. Thanks to Titan, those investors now have access to hedge funds with no lockups or performance fees, while engineering more advanced investment strategies.

The hedge fund industry is notorious for having a high barrier to entry with high fees and high minimum investment requirements.

However, much like robo-advisors have removed the middleman and digitalized the user experience to keep costs low for their customers, Titan has followed suit. They’re eliminating the middleman to pass along the savings to investors.

If your brand of bourbon is a more hands-on, actively-managed style, Titan Invest might be the perfect fit.

***Disclosure*** This article is a paid partnership with Titan Invest (“Titan”). All opinions are our own. This is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services. Titan uses a proprietary algorithmic strategy in selecting recommendations to advisory clients. Please see Titan’s website (https://www.titanvest.com) and the Program Brochure (available on the website) for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long-term investments. Investment losses are possible, including the potential loss of all amounts invested. Nothing here should be considered as an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. The above content is for illustrative purposes only to demonstrate products, services, and information from Titan. Performance results are net of fees and include dividends and other adjustments. 2019 YTD results are from 1/1/19 through 5/31/19. 2018 results are from Titan’s launch date of 2/20/18 through 12/31/18. All-Time IRR, alpha, beta, and Sharpe ratios are from Titan’s launch date of 2/20/18 through 5/31/19. All-Time IRR is the actual internal rate of return. Alpha is calculated using the Capital Asset Pricing Model (CAPM) and uses a risk-free rate of 2.09%, which was the average 3-month Treasury Bill rate during the period. All performance figures represent performance of a hypothetical account created on Titan’s inception date of 2/20/18 using Titan’s investment process for an aggressive portfolio, not an actual account. All Titan performance results include the use of a personalized hedge for a hypothetical client with an “Aggressive” risk profile; clients with “Moderate” or “Conservative” risk profiles would have experienced lower returns. Please visit https://support.titanvest.com/investment-process/hedging for full disclosures on our hedging process. Please see Titan’s website for full disclosures.
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