Principal Protection is a risk management strategy with an objective to return, at a minimum, an investor’s initial principal, minus any fees and withdrawals, at the end of a 7-year period. Horizon Investments, LLC offers this risk management strategy* as an overlay to individual investors who are participating in the Lifetime Income Strategy and Horizon’s Enhanced Portfolios.
Horizon Investments uses principal protection as a risk management strategy which analyzes the portfolio holdings inside your account, and provides a quantitative reason to reallocate a portion of the portfolio to a fixed income basket in order to protect your principal.
* not a guarantee
How does Principal Protection work?
Principal Protection tracks the value of your portfolio as well as the value of a theoretical fixed income basket related to your specific holdings.
Principal Protection uses its proprietary volatility modeling algorithms to forecast future volatility of your portfolio. It simultaneously calculates a series of trigger levels that will generate signals to reallocate assets based on the value of your portfolio.
These trigger levels may vary depending on the value of your portfolio relative to its initial protected value, the time remaining on the term of the Principal Protection,the level of forecasted volatility within your portfolio, and the general level of interest rates, among other factors.
You may liquidate your portfolio from Principal Protection at any time at the then-current market value of the portfolio.
Principal Protection value will also be less any withdrawals and fees.
The Principal Protection model was jointly developed by a team of industry and academic professionals.
The combination of theoretical modeling and real-world trading experience was crucial when constructing the Principal Protection model. The scarceness of experienced Equity and Fixed Income volatility traders combined with the uniqueness of the theoretical/real-world approach helps explain why the strategy employed by Principal Protection has not been widely applied.
The Principal Protection model has been thoroughly and successfully back-tested through the worst financial markets of the last 25 years, including the 1987 Crash, the1998 Long Term Capital Management/Russian Default crisis, the Internet bubble meltdown of 2000, September 11, 2001 and the severity of 2008.
Disclosure
Principal Guard, LLC is a company partly owned by one of the beneficial owners of Horizon Investments, LLC and acts in the capacity of a sub-advisor to Horizon for clients whose assets are invested using Horizon’s Enhanced Asset Allocation Strategies. Horizon pays a portion of the fee it receives from each client who is invested using these strategies, to Principal Guard. Such fee is described in further detail in the applicable client agreement with Horizon. Principal Guard is NOT A GUARANTEE against loss or declines in the value of your portfolio. It is a principal protection strategy that accompanies, in this case, Horizon’s traditional strategies.
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