Horter Investment Management in Symmes Township growing quickly with a safer haven for investors

Founder touts 'risk off' strategy for stocks
Posted at 3:46 PM, Sep 19, 2016
and last updated 2016-09-19 15:57:42-04

CINCINNATI -- Drew Horter hopes for the best, but planned for the worst. Now, his money management firm is growing rapidly with an investment strategy that aims to preserve capital in volatile markets.

“We don’t like going backwards,” said Horter, founder and CEO of Horter Investment Management in Symmes Township. “We know we have to take some risk, but we try to mitigate and minimize that risk.”

The strategy is winning some converts. The company now manages $1.1 billion in assets, an 11-fold increase since 2010. In addition, Horter just moved into a $5 million headquarters building on Mason Montgomery Road and is looking to triple his number of employees to more than 100 in the next three-to-five years.

His strategy was born in the last big market crash that began in 2007. That’s when Horter started looking for portfolio managers who earned modest gains but didn’t lose their shirts the last time the market hit a downturn, back in 2001. He’s since found nine different third-party managers who run 16 portfolios, allowing him to shift client assets into cash, bonds and hedging strategies during times of market uncertainty.

“You may sacrifice some growth,” Horter said. “We will probably under-perform in a bull market.” But you also avoid “cavernous drops where it takes you four or five years to recover.”

Is that the right approach?

Potential interest rate hikes by the Federal Reserve, falling oil prices, the United Kingdom’s exit from the European Union, a Trump presidency and a Democratic sweep of the White House and Congress, all have been argued as potential triggers for a a down stock market. But the bull market that began in 2008 will turn eight years old next March. And not everyone thinks it is about to end.

“We don’t think a crash is inevitable,” said Jeff Bahl, principal and portfolio manager at Bahl & Gaynor Investment Counsel. “The economy is plugging along at a good but not great pace. The consumer is actually on reasonably good footing.”

Bahl & Gaynor is a Downtown-based investment adviser with $15.4 billion in assets under management. It’s known for buying and holding stocks that pay increasing dividends.

Bahl expects a “choppy market” for the remainder of this year, driven by uncertainty over interest rate hikes and sweeping policy changes that could happen after November. But he thinks the economy and banking system are too strong to allow the kind of crash seen in 2008, so cashing out of stocks for safer havens doesn’t make sense.

“If you’re out of the market, you’re going to miss out on returns,” he said.

RiverPoint Capital Management has cashed out of certain stocks that reached lofty peaks, but it’s looking to redeploy that cash with stocks it considers undervalued.

“My mom said moderation in all things, and that’s what we do,” said Jeff Krumpelman, managing director and senior portfolio at RiverPoint, a Downtown-based investment adviser that manages more than $2 billion in assets. Like Bahl & Gaynor, it looks for dividend-paying stocks like Pfizer and Procter & Gamble that deliver a steady return over long periods. It sprinkles in growth stocks like Facebook and Amazon that have upside potential but come with greater risk.

“We would still say the right thing to do is with that incremental cash, put it back to work, buy on dips,” Krumpelman said. “You see a pull back in the market, you want to take advantage of that and use it as an opportunity to upgrade your portfolio.”

Billionaire Warren Buffett is famous for that approach. In this year’s volatile market, Buffett sold shares of Walmart, Charter Communications and tractor maker Deere & Co. But he also spent more than $1.5 billion to amass a 15 percent ownership stake in Phillips 66, a fuel company that had its value beaten down by falling oil prices.

Horter sees no problem with stock-market strategies such as value investing and dividend growth, but he thinks clients should be aware of the risks inherent in those approaches. Never again does he want to share bad news with clients like he did in 2008, when the S&P 500 lost 51 percent of its value in the five months ending in March.

“We have people now with what we call longevity risk,” Horter said. “If they’re 65 now, one of them may live to 90. That’s 25 years of exposure to the market place with your pool of money that’s all you’ve got. Rather than blindly going in and staying in the market and saying I hope and pray it always does well, (we say), 'Look at the last 15 years. Can you afford to take that risk?'”

More than 15,000 client accounts prove there is a market for Horter’s anti-risk mantra. While he doesn’t guarantee against losses, his portfolio statistics sheet shows nine of his 16 funds achieved full-year loss rates of less than 1.5 percent in 2015 and all 16 met that standard in 2014. Eight of the 16 funds hit double-digit returns in at least one of the last two years.

“Our goal is, if the market’s doing 10 (percent growth)” he said, “we can do 6 or 7 without these cavernous drops.”

Horter HQ lobby

So far, Horter’s growth has come from a national network of 350 investor representatives, most of whom work as independent contractors who like Horter’s risk-avoidance strategy. Horter's expansion will enable him to recruit investor representatives focused on Cincinnati, which now represents about $80 million in total assets under management. He thinks that local figure can reach $1 billion in the next five years by recruiting new advisers with a simple message:

“We’re at the height of the stock market, all-time highs, and we’re in a very bad time in the bond market. So, do you want to be a risk-off adviser? Or do you want to possibly see your client lose 20, 30, 40 percent again?”