T. Rowe Price: Time to Rethink Fixed- Income Diversification

Plan sponsors might be wise to diversify in more than one way in 2026.

Jessica Sclafani, a global retirement strategist at T. Rowe Price, began her firm’s retirement market outlook press briefing by sharing that diversification has moved well past mixing stocks and bonds.

“Since they were designated as [qualified default investment vehicles] nearly two decades ago, target-date strategies have evolved well beyond their foundational diversification frameworks,” Sclafani said. “Today’s [defined contribution] plan participants require more robust retirement investment solutions that can meet their varied needs across a range of market environments.”

Evolving Market Conditions and Fixed Income

Nearly half (49%) of DC plan participant respondents to T. Rowe Price’s 2025 Global Retirement Savers Study reported significant worries about inflation. Meanwhile, 33% of participants cited interest rates as “very concerning.”

“After a decade of near zero [percent] interest rates, bond yields now sit at elevated levels relative to much of the post-Global Financial Crisis period,” Sclafani said. “This is prompting DC plan sponsors and their consultants and advisers to reevaluate participants’ fixed-income exposure.”

Among all respondents to T. Rowe Price’s 2025 DC Plan Sponsor Survey, 60% said fixed-income oversight requires more time and attention now than in previous years, a 14-percentage-point increase from 2021 as part of the firm’s 2023 Future of Fixed Income in DC Plans Survey.

Moreover, nearly three-quarters (73%) of consultants and advisers identified a greater focus on fixed-income diversification opportunities as a primary driver influencing their evaluation of fixed-income investment, according to T. Rowe Price’s 2025 Defined Contribution Consultant Study, up 25 percentage points from the 48% who said so as part of the firm’s 2021 consultant study.

Expanding the Opportunity for Private Assets

T. Rowe Price’s solution for diversification, per Sclafani, is to expand the opportunity to include private assets in multi-asset products. Citing data published by fiduciary services provider Ocorian in February 2025, Sclafani said private markets overall have grown by 618% in the past 15 years, at nearly three times the speed of public assets’ growth.

“Our research suggests that professionally managed multi-asset solutions are the right chassis for offering DC plan participants the right exposure to private assets,” Sclafani said. “For example, a target-date solution offers the advantages of (a) absorbing complexity, (b) managing liquidity and (c) applying a robust governance structure.”

Sclafani added that private markets may also provide investors access to private company growth and may return premiums that differ from public-only portfolios. The enhancement is particularly meaningful when managed by “skilled investors,” she said.

“We believe that before introducing a new allocation, public or private, within a multi-asset portfolio, the investment opportunity needs to be evaluated, both individually and within the context of the broader portfolio,” Sclafani said. “Any private asset allocation must earn its place in the portfolio by offering unique, net-of-fee investment benefits.

The ‘Emerging Blend Trend’

Sclafani closed her portion of the session with an introduction to what T. Rowe Price calls an “emerging blend trend” of plan sponsors mixing active and passive investment management strategies.

About 82% of U.S. DC plan sponsors reported supporting using active managers in their plans to “protect against downside risk due to heightened market volatility,” according to T. Rowe Price’s 2025 DC Plan Sponsor Survey. Meanwhile, in terms of support for passive management, 84% of plan sponsors reported that “limiting cost is the most important consideration.” Some 76% of plan sponsors expressed a “belief that active management adds value,” while 78% pointed to passive management “to protect benchmark deviation,” making a case for a blend of both strategies.

“Collectively, these preferences can make a blend target-date solution particularly appealing if they can bridge the gap between fully active or fully passive approaches to deliver potential for excess returns while also being cognizant of fee pressures,” Sclafani said. “Those are [T. Rowe Price’s] thoughts on building more resilient and durable retirement investments.”