Seeks to provide a diversified, medium volatility option that balances assets that traditionally have higher growth potential with others that typically are more stable and/or do not move in lock-step.
The New Horizons Fund is MMBB’s most diversified investment option. It is unique in that it shares investments with MMBB’s large Annuity Fund.
The majority of the fund is invested in global equities and bonds plus a tactical asset allocation (TAA) segment. The TAA segment is designed to allow the money manager the ability to be flexible and direct assets toward whatever investments s/he thinks most favorable at a particular point in time. A portion of the New Horizons Fund is allocated to private investments. These are long-term contractual commitments which are not traded on any public exchange but which are expected to produce highly favorable long-term results. In addition, the New Horizons Fund has a small slice allocated to the real assets of timber and real estate.
These various investments do not always rise and fall at the same time and to the same degree. By combining them in a single portfolio over an extended period of time, the investor is more likely to experience an acceptable rate of return with reasonable volatility. The net return of an investment in the New Horizons Fund equals the result of these markets’ performance, plus or minus the fund managers’ active performance, minus investment and administration expenses.
The New Horizons Fund’s equity (stock market) exposure is very well diversified globally, from the most developed economies, such as the United States and England, to emerging markets, such as China and India.
Each segment of the pie chart is also diversified by styles, or methods, of investing as detailed below.
U.S. equity is one of the basic building blocks of a diversified portfolio, offering access to a full range of industries that power long-term growth. MMBB employs several styles of investment management in order to capture varying returns throughout the economic cycle:
To generate additional income there is a call-writing strategy that is overlaid on the US equity asset class. Though there will be times when it enhances return of the asset class and times when it detracts, the call-writing strategy is expected, over time, to incrementally add to total return and slightly dampen volatility.
International Developed Markets
New Horizons Fund’s holdings in international equities range from developed to emerging markets, this asset class attempts to outperform its benchmark, the EAFE Index. The EAFE Index is broadly representative of the stock markets of Europe, Australia and the Far East.
Assets are allocated among several managers who diversify their stock selections using different approaches, including, but not limited to:
The term “emerging markets” refers to countries whose capital markets are less mature than those of countries with developed economies, such as the United States. Emerging markets have a number of characteristics that make them attractive places to seek profitable investments. These include, but are not limited to:
All of the above may create the potential for higher investment returns than available in developed nations.
With higher return potential comes higher risk. Risks in emerging markets include higher volatility of share prices, and lower liquidity (ability to easily and quickly dispose of an investment once it is no longer attractive to hold). See more “here”:/how-we-invest/investing-approach/risks-of-emerging-markets/.
In investing in emerging markets MMBB applies a similar approach to that used in developed markets: splitting its assets among several managers who diversify their stock selections using different approaches, including, but not limited to:
Long/Short Equity Funds of Hedge Funds
There are many different kinds of hedge funds. The long-short equity hedge funds in which MMBB invests are a different way of gaining access to return opportunities in the stock market. This means that a portfolio manager can follow two different investment strategies. The manager can make a traditional investment by buying stocks “long” in the expectation that they will rise in value. But, the manager can also sell stocks in the expectation that they will fall in value. The manager builds value in this “short sale” by buying the stocks back at a lower price. By combining these two strategies, a fund manager can make money when the market declines as well as when the market rises.
To spread the risk, MMBB selects funds of hedge funds, meaning that each fund in which MMBB invests itself holds investments among numerous managers, each making independent decisions. The reason that hedge funds are included in the equity asset class is that their performance actually tends to be less volatile than the traditional long only approach. As a result, MMBB considers the hedge fund allocation to be a more conservative means of obtaining equity exposure. The hedge fund component tends to rise less than the other equity segments, above, during strong market environments, but, very importantly, tends to fall less during difficult periods. This can be a very important aspect in managing the overall risk and return of the New Horizons portfolio.
The bond segment of the portfolio incorporates several approaches, each of which has a specific role in creating a well-structured portfolio of fixed income assets. There are three factors of importance:
Core Fixed Income
Core fixed income is benchmarked to the Barclays Capital (BC) Aggregate Bond Index, which is broadly representative of the U.S. bond market. The BC Aggregate Bond Index includes government bonds, agency bonds, mortgages and corporate bonds considered to be investment grade.
MMBB uses two styles to execute this segment of the fixed income asset class: passive and active. The passive manager attempts to replicate the entire bond market represented by the index without an attempt to outperform it. Active managers, in contrast, are very selective in which bonds they hold in their respective portfolios. Active managers take into consideration such things as the probability that interest rates may rise or fall, the credit quality of the companies or entities that have issued the bonds, and the relative values offered by different sectors of the market (for example, whether government bonds are a better buy than corporate bonds). The active portion of the asset class is expected, over time, to produce a higher return than the passive component.
There are three other segments to New Horizons’ fixed income asset class, outlined below. Together they comprise 40% of total fixed income. However, MMBB’s investment committee has reserved the right to alter the weightings among these three from time to time.
This portion of the portfolio allows MMBB to take advantage of potentially favorable opportunities across asset classes and across strategies as they arise. For example, if the external manager believes that emerging markets equities offer unusual potential, he can invest in them. Later, if the manager believes that short-term bonds have the most potential for growth, he can reallocate this portion of the portfolio to short-term bonds. In other words, the manager is opportunistic, choosing among a broad range of asset classes rather than adhering to a pre-determined allocation. This may raise the fund’s overall exposure to an asset class.
Investments available to the tactical asset allocation manager include:
The diversification of this portion of the portfolio can vary over time. At one point it may be very diversified across a variety of asset classes; at another point in time it could be rather concentrated in just a few favored areas. Over time this pool of assets has tended to have about 20% allocated to a multi-strategy hedge fund in order to anchor performance with a relatively stable segment.
By being able to purchase assets with the best prospects, the probability for favorable performance is enhanced.
Private Investments generally refer to investments in anything that is not a publicly traded stock or bond or comprised of publicly traded stocks or bonds. Private investments may have a number of distinctive characteristics, including but not limited to:
Although private investments allow the New Horizons Fund to offer broader diversification than other investment options, and possibly more attractive returns than some other investment options, these advantages carry unique risks, many of which, but perhaps not all, are noted above. The success of private investments is highly dependent upon the skill of the money manager to identify and acquire choice investments. Risks include, but are not limited to:
The New Horizons Fund is intended to give the investor an even more diverse an exposure to the asset classes and investment styles than exist in the other MMBB investment portfolios.
The largest share of this fund is invested in equities (stocks of companies) of a wide variety of corporations around the globe. Historically, over long periods of time, equities have tended to provide higher returns than other investments, such as bonds or money market funds. While there is no guarantee that this will be the case in the future, investment theory suggests that exposure to equities for a portion of a diversified investment portfolio is a key reason investors would select an option like this one.
Because bonds (fixed income) usually have return patterns that are very often opposite to stocks, the bond component tends to have a stabilizing affect on the portfolio. This can be particularly valuable when the stock market declines.
The tactical segment of the New Horizons Fund alters the strategic allocation to other asset classes to more heavily weight those thought to offer more promising prospects and less heavily weight those thought to offer less. For example, if the manager of the tactical segment thought that emerging market equity offered a better investment opportunity than other asset classes s/he could put more of this category’s assets into emerging market equity; if that opinion later changed to favor bonds the manager could shift assets out of emerging market equity and into bonds.
Very importantly, New Horizons affords members an opportunity to participate in investments that are typically not available to individuals, except those who are extremely wealthy. These investments fall into two categories:
The New Horizons Fund mirrors the investments of the Annuity Fund, the asset pool from which annuity payments are made to retirees. Since the Annuity Fund has a very long time horizon, it can afford to tie up assets in alternative investments for many years. For members who want to place their assets in a very diversified investment option prior to retirement, the New Horizons Fund may be an opportunity to access higher returns than some other investment options without extremely high volatility.
All investments risk the loss of capital. Although the combination of a variety of asset classes creates a very well diversified fund that should cushion shocks in any one of those areas, the return of this fund could still be negative.
That portion of the New Horizons Fund that is allocated to stocks (equities) will be as subject to equity market forces as any of the MMBB equity-only investment options.
That portion of the New Horizons Fund that is allocated to bonds (fixed income) will be subject to risks of the bond market, primarily losses from rising interest rates. Investments proving uncreditworthy can also create losses.
Part of the equity and fixed income (stock and bond markets, respectively) exposure is gained through the use of hedge funds. Hedge funds are generally less regulated than other types of investment vehicles. They may leverage investment positions. This can magnify returns, both positive and negative. Although MMBB engages managers that they believe to be both prudent and reputable, it is possible for complex hedging strategies to go awry and harm those portions of the portfolio.
This fund allocates a portion of its assets to a tactical asset allocation strategy. This strategy is designated to have the flexibility to shift among equities, bonds or other asset classes. In the aggregate, then, this portion of the overall portfolio can increase the fund’s exposure to equities and bonds beyond that indicated in the strategic allocation.
The success of all actively managed portions of the fund is highly dependent upon the skill of the manager appointed to them.
Due to the latitude extended to active managers, their portfolios may hold some securities (e.g., high yield bonds) that MMBB might not include as stand-alone policy allocations. As a result, more risky investments can be part of the fund’s portfolio.
Private investments and real assets carry special risks, many of them related to illiquidity:
Values for certain investments are not available on a daily basis and/or available only on a lagged basis. This has two implications for a person who is buying or selling units of the New Horizons Fund on any given day. If the non-daily valued investments have declined in value since they were last valued, a person purchasing units of the New Horizons Fund could be purchasing them at a higher price than if the actual value were known at the end of each business day. Conversely, if the non-daily valued investments have increased since they were last valued, a person selling units might redeem units at a lower price—and thus realize less profit— than if the actual value were known at the end of each business day.
*If you are uncomfortable with the risks associated with the New Horizons Fund, you may want to consider another MMBB investment option.*
The performance of the New Horizons Fund for varying lengths of time is summarized below. The longer the time period, the more likely it encompasses varying economic and market conditions.
|New Horizons Fund||4.14%||4.14%||-3.30%||6.98%||4.95%||5.41%||7.78%|
|New Horizons Fund Multi-Asset Class Benchmark||7.53%||7.53%||-1.22%||9.36%||5.53%||5.60%||7.60%|
While it is valuable to view investment performance over long-term time horizons, looking at shorter time periods can give one insight as to how returns may fluctuate over shorter time periods. The table below displays calendar year returns.
Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance is for the stated time period only; performance through the current date may be lower or higher than displayed above due to market fluctuations, manager performance or other reasons.
From time to time MMBB contracts with one or more external managers to execute the investment strategy for the New Horizons Fund. Recently the roster for this investment option included:
Alinda Capital Partners
American Century Investment Management
American Securities Partners
Dimensional Fund Advisors
Dodge & Cox
Energy Investors Fund
Federal Street Partners
Fisher, Francis, Trees and Watts
Insight Equity L.P.
Mellon Capital Management
Molpus Woodlands Group
Mondrian Investment Group
Parametric Portfolio Associates
RBC Global Asset Management
Trust Company of the West
UBS Global Asset Management
Western Asset Management
|Investment Management Fees||0.66%|
|MMBB Administrative Charge||0.50%|
|Sales Charge (Load) on Purchases||None|
|Deferred Sales Charge (Load)||None|
|Short-term or Other Redemption Fee||None|
|Distribution, or 12b-1, Fee||None|
|Dealer Commission (percent of offering price)||None|
|Low Balance Account Service Fee||None|
|Total Annual Operating Expenses||1.28%|