Flexible Positioning For Long-Term Growth

Flexible Positioning For Long-Term Growth

After starting out 2016 with sharp losses, U.S. equity markets have begun to stabilize and rise. The S&P 500 index of large-cap stocks is up 11.6% during the six weeks through March 29th, while the Russell 2000 index of small-cap shares is up 8.7% (see fig. 1).

Flexible Positioning For Long-Term GrowthThis recovery has been driven by a number of factors, including:

  • Continued accommodative monetary policy. The Federal Reserve Board not only chose to hold short-term interest rates steady at its latest meeting, but also indicated it would likely raise rates just two times this year. (At the start of 2016, the Fed had suggested there would be four rate hikes this year.) The Fed’s current outlook is more in line with investors’ predictions, which has added a dose of stability and calmness to the markets.
  • Stabilizing oil prices. In recent weeks, oil prices have begun to rise off of their historic lows. Because stock prices and oil prices have shown well-above-average levels of correlation this year—that is, their price movements tend to be in sync—the rise in oil has helped push stocks higher (see fig. 2).
  • Continued solid jobs and employment data. The U.S. economy added 242,000 jobs in February—better than many investors expected—while the unemployment rate remained steady at 4.9 percent. In addition, the number of people applying for unemployment in early March fell to a five-month low, while another unemployment metric that measures people not actively looking for a job or at work part-time for economic reasons fell to its lowest reading since May 2008.


Real Spend: Flexible Positioning For Long-Term Growth

Horizon’s Real Spend portfolios have benefited from the market’s recent positive performance. Early in 2016, the portfolios were hedged (using Horizon’s Risk Assist® risk mitigation strategy) by as much as 15% due to a significant rise in market volatility. Those hedged positions were unwound as volatility subsided, and the Real Spend portfolios now have normal levels of equity market exposure.

Flexible Positioning For Long-Term GrowthSince the elimination of the hedged positions, which occurred near the end of February, the broad stock market is up approximately 4%. This has helped drive strong performance in the Real Spend portfolios, which have higher allocations to equities than do traditional retirement income portfolios. That equity-bias is due to Horizon’s belief that retirees remain investors with important long-term capital growth needs that require equities’ superior return potential.

The Real Spend portfolios also have benefitted from the current bias towards U.S. stocks, as domestic equity markets have outperformed their international peers in recent weeks (see fig. 3).

Of course, Real Spend portfolios also continue to help retirees meet their current income needs through the portfolios’ spending reserve component, which allocates three years’ worth of expenses to stable value holdings that can be tapped for withdrawals quickly and easily.


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