The television set motif for our 3Q Focus is an apt metaphor for the challenge faced by investors, both professionals and advisors, as well as their clients in making sense of this fast-changing, information-saturated world.

Remember rabbit-ear TV antennas? Turn them the wrong way and the noise would overwhelm the signal and the TV screen would turn to snow. At least with rabbit ears it was clear whether the incoming information was signal or noise. If only financial markets were so simple.

How does Horizon Investments’ team of portfolio managers and analysts separate the meaningful signals from the pervasive noise with the aim of successfully navigating markets?

Horizon’s Analytical Difference
The answer has two parts. The concrete part is that we use computers, models, math, and various quantitative and qualitative tools. Those tools monitor relationships between markets and market segments – and where those relationships currently are relative to their own history.

If stresses are truly building – or being relieved – then we would expect certain movements in markets to occur. Those relationships help us assess whether the dominant narrative is being reflected in prices.

The second part of the answer starts with a question: how does Horizon’s investment management team know which relationships to examine? We have to formulate the right questions so we pursue the best data – and critical analysis of that data – so we can prepare for what might happen. We tap into the diverse viewpoints and expertise of the management team with the aim of staying a step ahead of the issues, events, and narratives that could affect markets.

Deliberately, we do not take a dogmatic approach. We believe it is a mistake to invest based on our opinion of what is the “correct” or “wisest” course of action for decision-makers. When it comes to anticipating the impact of various policy decisions (regulation, legislative, fiscal, monetary) on different segments of the market, we focus on what we think policy makers will do, not what we believe they should do.

In our endeavor to be a valued partner to advisors and their clients, we aim to produce portfolios that help investors reach their goals, taking into account that those goals and investment risks can change over time. To us, that means we need to build portfolios that are flexible and adaptable so that as market leadership changes, we can change with them, though without taking undue risks.

Likely our most important core value from an investment management perspective is a concept called “expectational certainty.” This is the idea that a strategy should perform like we tell you it’s going to in different types of markets – over and over again. Expectational certainty is an important part of managing your clients’ portfolios in relation to their financial plan, not only because it can help put them on a path toward achieving their financial goals, but also because it can suggest a corrective course of action should the portfolio get “off track” relative to that financial plan.

The same approach applies to economic data. What should we “expect” to see if the data are an accurate reflection of the narrative? Are there extenuating circumstances that make the data less informative than in the past? Is alternative data helpful in this case?

Mis-pricings, the state of market relationships, and analysis of economic data are among the key signals Horizon’s investment management team relies on to separate the noisy world from the valuable signals.

Our prior three quarterly Focus reports were based around the idea that the world as we know it is changing in ways that could markedly diverge with the past, which drives our ambition to remain ever vigilant against locking ourselves into one particular intellectual framework:

• Death of the Business Cycle
• Crushed by Zero
• A New Pattern of Life