Seligman TargetHorizon Funds Adopt Risk Overlay Strategy

Seligman TargetHorizon portfolios, a suite of target-date funds composed of exchange-traded funds (ETFs) and managed by RiverSource Investments, has introduced a risk overlay strategy to help mitigate portfolio volatility.

According to an announcement, the strategy is designed to increase the potential for more favorable returns in down, flat, or gently rising equity markets, in exchange for lower returns in strong up markets. Charles Kadlec, co-portfolio manager, noted that the overlay strategy is currently most applicable to Seligman TargetFund 2015, which is within 10 years of its target date, and Seligman TargetFund Core, a multi-asset class balanced fund.

According to John Schonberg, co-portfolio manager, the strategy primarily employs a buy-write methodology focused on selling near-term call options against the underlying equity ETFs in the Seligman TargetFunds that are within 11 years of their target-date year. At the manager’s discretion, the Seligman TargetFunds also may purchase puts.

According to the announcement, the risk overlay strategy was created to:

  • offer an alternative to overweighting fixed income and potentially depressing future portfolio returns;
  • provide a solution that financial advisers and individual investors with smaller accounts can benefit from but cannot readily replicate on their own in a cost effective manner;
  • increase the chances of investors remaining invested during periods of short-term volatility, thereby avoiding the common mistake of selling low.

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