Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 25th, 2017
Editor’s Note
PLANSPONSOR is pleased to bring you a special edition of NewsDash, sponsored by BlackRock, focused on enhancing diversification.
MOST READ ARTICLES
1
The Senate Math That Could Block SECURE Act
2
House Committee Advances Bill to Establish Union Pension Lifeline Program
3
Open MEPs Not for Every Plan Sponsor
4
Driving Financial Wellness at Work
5
Pension Participants Claim ERISA Breaches in Dow DuPont Pension Transfer
Alternative Assets
Why Inflation Still Matters and What DC Plans Can Do to Protect Against It
Even modest inflation can put a dent in retirees’ purchasing power. Learn how you can help to hedge against this risk. Read more >
Institutional Investors Being Forced into 'Risk' Assets
According to new research from Cerulli Associates, institutions that were once able to meet their target returns by investing in mostly long-only equity or fixed income are being forced more into “risk assets.” In particular, “alternative” investment classes are playing an increasingly important role in the effort to meet necessary portfolio returns, Cerulli finds. Read more >
Smart Beta/Factor Investing
Smart Beta in DC Plans
Factor investing is growing in popularity among institutional portfolio managers, and now we are beginning to see growing interest in factor investing and smart beta among defined contribution (DC) plan sponsors. For insight into smart beta and its possible role in DC, we spoke to Sara Shores, the Global Head of Smart Beta for BlackRock. Read more >
Can Millennials Save the Earth While Saving for Retirement?
The environmental movement may have been a baby boomer invention, but millennials are continuing the tradition by finding practical ways to save the earth. And they’re not just buying electric cars and filling reusable water bottles. They’re putting their money where their beliefs are through sustainable investing based on their social or environmental values. Millennials’ growing interest in sustainable investing has created an intriguing possibility for defined contribution (DC) plan sponsors looking for ways to get younger employees engaged in their retirement. Read more >
Smart Beta Explains Institutional Asset Manager Outperformance
Researchers explored the importance of smart beta or tactical factor allocations. They explain that the words smart and tactical refer to tilting portfolios toward better-performing factors. Their estimates tie positive performance directly to smart beta investing. They document that institutional asset managers outperformed strategy benchmarks by 42 basis points net of $162 billion in annual fees and that smart beta investing entirely explained this outperformance. Read more >
Factor Investing Popular Among Institutional Investors
Factor investing is supported by years of academic research and is based on the premise that the risks and returns of all investments can be mapped to a common set of factors. Survey respondents believe macro-economic factors such as economic growth, inflation and interest rates, as well as style factors such as value, quality, momentum and volatility, can help them deliver long-term outperformance, decrease overall portfolio risk, increase transparency in portfolio construction, and better understand past and future drivers of return. This strategy has become increasingly popular as a result of the financial crisis, when asset owners wanted to seek deeper insights into risks and returns, diversification and more efficient investment strategies, according to BlackRock’s report. Read more >
TDFs/QDIAs
Human Capital and Target-Date Funds
Every target-date fund makes explicit or implicit assumptions about human capital, which is the estimated value of an individual’s future wages. This estimated value, the rate at which human capital is converted into financial capital through labor income, and the degree to which human capital offsets portfolio risk, are the foundation of a target-date fund’s glidepath. Learn why understanding income data should drive the glidepath. Read more >
Follow the Money: Are Core Menus Doing Their Jobs?
Consider the average core menu. In our experience, it typically includes a core bond fund and multiple equity selections spread across style boxes and regions. Core menus are designed to provide choice and diversification. How well are they doing the job? Read more >
Choosing the Right TDF for Your Participants
With so much ongoing development in the target-date fund (TDF) market, new products are emerging with designs that vary widely in terms of asset allocation; underlying fund selection process, which can be firm-specific or open-architecture; investment strategy, which can be active, passive or a mix of both; and glide path, which can either travel “to” or “through” a participant’s retirement. Read more >
Active Equity
Choosing a Philosophy (DC equity—active vs. passive)
Participants in defined contribution (DC) plans, and the sponsors that design the plans, face the same type of choice. Retirement investors need equities as the workhorse investment for the long haul. Passive funds incur minimal annual management fees and perform in line with the market. Active strategies offer the prospect, yet not the promise, of a better ride than passive indexes, but, to gain a better experience, the cost will be higher management fees. Active management can also cushion negative portfolio returns in down markets, helping to keep participants invested, though they can miss some bull market upside as well. Read more >
Multi-Asset Funds
Do International Bonds Improve Target-Date Funds?
In today’s interest rate environment, fixed income allocations are getting increased scrutiny by plan sponsors. In particular, the question of whether adding international bond exposure to target-date funds will improve diversification and generate stronger risk-adjusted returns remains a popular discussion point. Read more >
DC Plan Multi-Asset Funds
The current fashion of plan design favors a first tier of diversified investment solutions accompanied by a simplified set of individual funds for those participants who want to structure portfolios on their own. Simplifying the second-tier choices can reveal gaps in the core menu, however, and to fill them sponsors are turning to diversified funds that invest across several asset classes, often in nontraditional ways. Read more >
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

Advertising: Paul Zampitella paul.zampitella@strategic-i.com

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