Investment Philosophy
Why Structured Dividend Capture Is Our Cornerstone
At Titan Strategic Income, we believe idle cash should never sit stagnant. That’s why monetizing that cash in a structured way to generate dividends sits at the heart of our philosophy: it transforms short-duration option premiums into consistent, uncorrelated income streams. This stacks additional income on top of the interest on your cash, enabling higher compounding of your liquid cash holdings.
Phenomenal returns are found in less traded assets
“When everyone begins investing in a strategy, the excess returns disappear.” This insightful quote should be top of mind for investors seeking attractive risk-adjusted returns. Once an approach becomes “discovered”, it is commonplace in the portfolios of more and more investors. As more investors pile in, the excess returns from the approach get traded away. One colleague used to say “In the 1980s there were 100 hedge funds and 60 of them outperformed the market. Today there are 10,000 hedge funds and 60 of them outperform the market”. Private equity, venture capital, commodities trading, and active stock picking are just a few examples of approaches that no longer deliver returns in excess of the market to compensate for their risk and / or long holdup periods.
The Behavioral Edge
Income Mindset
Humans tend to hoard cash—especially after market volatility. Titan Strategic Income overcomes this inertia, turning “cash on the sidelines” into an active alpha generator.
Loss Aversion Meets Opportunity
By selling puts on high quality stocks, we cushion ourselves against small market dips, capturing a flow of steady cash along the way. The shares we acquire are purchased at a discount to market prices and then converted back to cash. Our “safety first” framing taps into the market’s natural risk-aversion, while still earning premiums as a source of dividend income.
Taking Advantage of Mispricing
Investors buy puts for a number of reasons, but one of them is fear. Puts are much like insurance, and just like with insurance, buyers of puts get less over time than they pay in premium. Because puts are overpriced, Titan Strategic Income Fund sells short expiration puts which are unlikely to result in any obligation to the fund, generating an attractive cash premium.
Maximizing return requires monitoring many assets
Many individual investors who sell puts only sell puts on the S&P 500 index. This strategy can make money over time, but maximizing return means maximizing premium. On any particular day, the greatest premium may be found on the S&P 500 index but it may also be found on another index or on an ETF put or on an individual stock put. Monitoring as many assets as possible allows for the greatest level of daily premium generation. Over time, that additional premium compounds creating exceptional returns.
Long term returns require short term downside protection
Large declines in asset value create incredible hurdles for long term returns; losing 25% in one quarter requires earning 33% the next quarter just to end up even. Further, they create incredible discomfort for investors which can lead to investors pulling money out of a strategy, often right before a rebound. Titan Strategic Income Fund believes downside protection must be built into every trade. The fund does this by selling puts that require the underlying asset to decline substantially and over a short period of time. As a result, the majority of positions will generate positive returns for the fund. In addition, the fund aims to smooth returns further by holding, at all times, a diverse portfolio of options across many different assets which expire on a number of different dates.
Liquidity has value
Locking up an investor’s money for long periods of time is its own form of investment cost. The inability to nimbly shift allocations as market conditions change, for example, can hurt long term returns. When an investor needs access to her hard earned capital, whether it be for an emergency or new opportunity, it is important that her capital is available to her. And when a manager errs, investors need to have the option to pull funds out and reallocate. Titan Strategic Income Fund invests in options which expire in under 1 month allowing the fund to offer investors quarterly distributions.
Operational Philosophy
Titan Strategic Income Fund, LP is built on a foundation of integrity designed to last for generations. TSIF focuses on identifying great execution prices, selling with patience, and strategically aligning incentives. This practice over the long term will directly enhance returns and provide significant value to our clients, the limited partners (LPs).
Our communication includes quarterly letters that present salient quantitative information and annual letters with detailed commentary regarding the fund. Quarterly statements, an annual audit, and K-1 or relevant tax documentation are provided by our service providers.
We identify great execution prices.
The fund tracks hundreds of stocks and ETFs, evaluating each one of them daily for mispriced puts. The fund has a unique means of comparing put prices across assets, allowing for an “apples to apples” comparison of put prices. Each day, the fund selects the most overpriced put for sale. This process helps deliver higher risk adjusted returns.
Selling with patience.
Identifying high put prices is just the beginning. Often, these assets have a high bid-ask spread. To execute the trades quickly would require selling at the bid price. However, the fund aims to sell for better than the bid price by putting in adaptive trades leveraging brokerage expertise to execute at better prices. This, however, requires longer-than-immediate execution. By exercising patience in order execution, the fund is able to deliver higher returns to its limited partners.
Alignment of Interests
Alignment of general partner and limited partner interests is a top consideration in every operational decision. The unique structure of PIFI incorporates an annual hurdle rate, a high-water mark provision, and an emphasis on performance-based compensation to achieve alignment objectives. A shared pursuit helps avoid conflicts of interest and allows us to maintain the integrity of the fund over the long run.
Proper incentives can significantly enhance and align motivations. Specific tangible, financial enticements have particularity notable power to alter actions or desires. A management fee-based firm will attract highly paid and very successful sales people because raising capital can deliver significant bonuses.
Similarly, compensation based on long-term performance will attract those able to deliver long-term market outperformance. We have aligned ourselves with the latter. Compensation is earned only after reaching new all-time highs (high water mark) and on annual returns above 5%. The economics are simple: we only make money when you make money.
Investment Process
Customized Algorithms and Technology
We automate each step of our strategic income generation with cutting-edge algorithms, custom-built software, and machine learning techniques.
Superset Identification
We use proprietary filters on 13F data — focusing on value-based firms with long-term upward trends — to assemble a broad universe of stocks poised for positive returns. These comprise our core underlying assets. We then layer onto this core set of stocks a set of less traded stocks for which put prices often become distorted.
Risk Screening
We exclude names with structured products risk or excessive leverage—removing companies with high debt-to-equity ratios to safeguard against drawdowns. Titan does not need to identify high-performing securities; instead, securities which will have less downside than market expectations are ideal assets.
Strike price selection
Strike price selection is critical for risk control. Each security is evaluated separately, identifying strike prices that offer sufficient cushion in cases of moderate price declines. A range of sufficiently low-risk strike prices is identified for each of the shortlisted securities.
Premium harvesting
The first set of steps focus on risk reduction. This step focuses on return. Titan uses a proprietary metric which targets contracts exhibiting elevated short-term implied volatility, securing the highest possible premiums to bolster partner income.