In target date funds (TDFs), fixed income assets play a critical role in managing portfolio volatility and generating strong risk-adjusted returns—a role that becomes even more vital as participants approach retirement. Plan sponsors may want to consider the following when evaluating a TDF's fixed income allocation:
• A well-diversified fixed income allocation may be able to deliver more consistent risk adjusted returns across a range of investment environments than a more narrowly diversified, concentrated allocation confined to those fixed income indices that can be efficiently replicated.
• Skilled active fixed income managers generally have greater flexibility and more tools than passive managers for generating strong risk-adjusted returns over time. Replicating a fixed income index can be more complex, costly and subject to structural bias, and involve more active decision-making, than some investors realize.
• Interest rates are widely expected to climb higher. Ensure that your TDF strategy can adapt to such changes and represents a reasonable compromise between controlling costs and providing participants with the potential for a smooth path to a financially secure retirement.
By downloading a white paper, you are agreeing to have your contact information shared with the content sponsor, who may then contact you.
All white papers posted were created by the listed authors who are solely responsible for the research, finding and all materials contained therein. Pensions & Investments has not verified or edited the materials (other than for length and style) and does not necessarily agree or disagree with the analysis and positions expressed by the authors. Reference to any company, product or service does not imply recommendation or sponsorship by Pensions & Investments.
For more information on submitting a white paper, please contact Richard Scanlon at email@example.com or 212-210-0157.