Horizon Investments, an investment advisory firm headquartered in Charlotte, N,C., has since its inception in 1995 developed into a multi-discipline investment management think tank that also provides asset management and manufactures investment products.
Horizon Investments uses principal protection as a risk management strategy which analyzes the portfolio holdings inside an account, and provides a quantitative reason to reallocate a portion of the portfolio to a fixed income basket in order to protect your principal.
The strategy uses Horizon’s proprietary volatility modeling algorithms to forecast future volatility of a portfolio. It simultaneously calculates a series of trigger levels that will generate signals to reallocate assets based on the value of a portfolio.
“There's a lot of crossover between the risk management stuff that we do and kind of what we do in the alternative space,” said Soctt Ladner, director of altenrative strategies at Horzon Investments. “They're alternative risk management strategies. We are a global ETF strategist. Our clients are ultimately investemtn advisors, so we operarte in a separately managed account environment, which sort of precludes a lot of use of derivatives and other types of things.”
Trigger levels may vary depending on the value of a portfolio relative to its initial protected value, the level of forecasted volatility within a portfolio, and the general level of interest rates, among other factors.
“So when we develop these risk management strategies, they end up being very much a kind of like a managed volatility except with, just focusing on managing downside volatility rather than managing all volatility,” Ladner said.
Prior to joining Horizon in 2010, Ladner helped to launch an equity index volatility and dispersion trading unit at PEΔK6 Investments in Chicago, a proprietary listed option trading firm.
Previously, at First Union/Wachovia, he founded and ran the $4 billion equity swap and forwards portfolio alongside of his listed equity option and over-the-counter equity derivatives portfolios. Coincident with his equity derivatives trading responsibilities, he also co-founded and managed the Risk Arbitrage and Special Situations portfolio. After moving into the interest rate derivatives groupLadner managed the $300 billion notional swaption and cap/floor portion of the bank’s interest rate derivatives portfolio.
“My very core expertise is in volatility,” he said. “Modeling volatility and forecasting volatility is very important if you're trying to manage risk. Understanding how VIX ETFs, futures and options on VIX, should be used, or whether they sould be used at all. All the quantitative work you have to do in order to be a derivatives trader certainly helps in developing our quant strategies and the framework with which we deal with all of our quant strategies.”
Ladner added, “We obviously do risk management inside of our tactical strategies, but we're not the kind of strategist who's going to one hundred percent cash inside of that tactical strategy. We're going to stay within a beta of.7 to 1.3 of our stated benchmark generally.”
