New Positions In Horizon’s Portfolios

Horizon recently made adjustments to its equity and fixed-income portfolios based on our analysis of various market conditions, and potential opportunities and threats. Here’s an overview of our recent investment strategy decisions.

Equities: Focusing on sub-sectors

The equity market in recent weeks has lacked a clear and sustained leader among its various market segments and investment styles. Sectors that perform well for a few days are quickly replaced by other sectors, for example, while value and growth stocks keep taking the lead from each other.

This lack of a discernible investment pattern stems largely from the mixed earnings results during the first quarter of 2016. Some sectors delivered better-than-expected earnings growth while others disappointed. Overall, revenue growth remained weak.

In response to these conditions, we sought out opportunities among various sub-sectors of the 10 main industry groups that make up the S&P 500. As we “dug deep,” we identified select segments that have bucked the market’s overall trend by demonstrating relatively strong first-quarter revenue growth as well as revenue growth that was better than investors had expected. As a result our analysis, we took new positions in:

  1. Medical device makers. A sub-sector of the healthcare industry, medical device manufacturers are launching a number of new products that are expected to generate strong sales. In addition, these companies have significant amounts of cash on their balance sheets, which enables them to improve their earnings through acquisitions.
  2. Software firms. A segment of the technology sector, software providers are seeing strong demand from the rising popularity of cloud computing. The software-as-a-service model allows companies to cut costs and operate more efficiently by outsourcing their data processing and storage needs rather than maintain their own servers and other technologies.
  3. Aerospace and defense. The companies in this area of the industrials sector benefit directly from increased U.S. government defense spending aimed at addressing geopolitical concerns.

Fixed-income: Preparing for rising rates while capturing yield

The Federal Reserve’s monetary policy is once again attracting plenty of attention from investors. Recently it was revealed that most members of the Federal Reserve Board believe the economy could be strong enough to require an interest rate hike in the near term—potentially as early as June.

In light of this new information, we have positioned the Horizon fixed-income portfolios as follows:

  • We have shortened the portfolios’ duration, in order to protect against rising rates. Prices on longer-term bonds tend to fall more than prices on shorter-term bonds when interest rates rise.
  • We have made an allocation to high-yield corporate bonds. As the energy and oil sectors show increased stability, the risk of default among issuers of high-yield bonds is falling. As such, select high-yield bonds currently offer attractive yields relative to other segments of the bond market.

Horizon remains vigilant as we continue to assess current market conditions, and we will update the portfolios accordingly to reflect our analysis.

Categories: Market Notes
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