Building Portfolios with Horizon Investments
On Behind the Markets, a podcast brought to you by Jeremy Schwartz, WisdomTree’s Global Head of Research, we talk to market strategists, business executives and financial advisors about important trends underpinning the financial markets.
In this episode, Jeremy talks to Mike Dickson, Head of Portfolio Management at Horizon Investments.
Listeners will hear about:
- Horizon’s goals-based asset management framework and how they help empower advisors to create more customized investment strategies for what clients are trying to achieve.
- As investor goals change, so, too, should their risk levels
- Horizon has three types of goals-based focuses:
- Gain strategies: trying to grow wealth
- Protect strategies: seeking to accumulate wealth while focusing on protecting against major losses
- Spend strategies: for investors in or near retirement, the objective is to minimize the risk of running out of money while taking distributions from a portfolio
- Most of Horizon’s clients are in the Protect phase but transitioning increasingly to the Spend phase.
- Historically, investors would answer a risk questionnaire, and a conservative allocation would suggest a heavier allocation to bonds. But in today’s environment, if an investor has certain spending requirements, they are more likely to fail to achieve their objectives with that same bond allocation, given today’s historically low yields.
- 80/20 is the new 60/40: In short, Horizon’s baseline recommendation for a traditional 60/40 equity/bond client goes as high as 80/20 equity/bonds, given different goals-based objectives.
- Taking this higher equity risk, Horizon’s team takes a more tactical approach within the equity bucket to help manage the higher risk level of this higher equity allocation.
- Some of the strategies their team employs can utilize factor rotation strategies but also option strategies. Momentum, low volatility and higher quality assets are strategic over-weights in their process, given the equity-heavy nature of the strategies.
- In the Protect strategies of Horizon’s portfolios, they closely monitor drawdowns in portfolios, and that allows them to have more equity exposure on average. Once drawdowns start occurring, they lower exposure to equities, seeking to mitigate these losses.
- Horizon’s Spend strategies target a specific retirement distribution target and are optimized to meet specific client objectives.
- Given the nature of income-producing options today, the higher the requirement for income distributions, the higher the equity allocation Horizon is going to recommend. Spending requirements are often needed over periods 20 years and longer.
- These higher equity allocations come with the greater risk of loss, so there are strategies Horizon employs in an effort to counterbalance those risks.
- If you have a 60-year-old married couple, the actuarial tables suggest there is a 50% chance you need to plan for a 30-year horizon of spending requirements. Using that time horizon, and getting distributions to keep up with inflation, you will likely need growth, which is why equities are important.
You can listen to our full conversation with Mike Dickson below.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.