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White papers

Diversifying the inflation hedge
Firm: American Century Investments
Overview: A carefully constructed mix of private and public investments can improve the liquidity profile of a real return allocation, provide additional diversification benefits and may enhance risk-adjusted returns. TIPS allocations may assist with reducing inflation risk and maintaining purchasing power while providing liquidity and inflation insurance as private market.

Importance of sequence of returns risk in target date strategies
Firm: American Century Investments
Author: Rich Weiss, SVP, Senior Portfolio Manager, Asset Allocation Strategies
Overview: "Sequence of returns" refers to the order in which an investor experiences returns. This concept is often used to illustrate the so-called "flaw of averages"; that is, two investors with the same arithmetic average return can end up with significantly different account balances depending on the timing, or sequence, of those returns. The pattern of returns is particularly important for retirement investors, who are necessarily exposed to a long series of market returns, and who are especially vulnerable to poor performance in the crucial years around retirement.

TDR: A New, Comprehensive Measure of Target-Date Risk
Firm: American Century Investments
Authors: Scott Wittman, CFA, CAIA, CIO, Quantitative Equity and Asset Allocation
Rich Weiss, SVP, Senior Portfolio Manager Asset Allocation Strategies
Overview: In this paper we hope to advance the cause of TDF risk measurement. First, we will discuss the challenges and limitations of current approaches. Next, we will offer a framework for assessing risk across the entire glidepath that accounts for an investor's wealth levels and movement through the asset accumulation and distribution phases. The resulting risk measure, which we call "TDR", we believe is preferable to the crude approximations available at present. Further, we believe TDR to be a fairly robust framework that can be used to assess TDF risk along multiple dimensions beyond simply looking at volatility.

Volatility as an asset class: Opportunities and challenges for incorporating volatility in multi-asset portfolios
Firm: American Century Investments
Author: Rich Weiss, SVP, Senior Portfolio Manager, Asset Allocation Strategies
Overview: Investing in volatility as an asset class (VIX) has been the subject of much discussion in the investment community in recent years because of its potential use as a portfolio diversifier. Defined generally as the 30-day rolling standard deviation of daily stock market returns, volatility's new-found popularity owes much to the 2008 financial crisis, when returns on domestic equities and a great many traditional alternative investments became highly correlated. Volatility, however, did just the opposite - it became increasingly negatively correlated with stocks as the crisis deepened.

BlackRock's Annual Retirement Survey | Reinventing Retirement: What Retirees Have to Tell Us About the New World
Firm: BlackRock
Overview: Retirement is changing; the question is how? While the media is filled with dire warnings and evidence is piling up that retiring later and working during retirement are becoming more common, BlackRock decided to get the opinion of those best positioned to offer insight into the new world of retirement: current retirees.

Extending Fixed Income Duration - Which Strategy is For You?
Firm: DrinkerBiddle (TIAA-CREF)
Authors: Fred Reish, Bruce Ashton and Joseph Faucher
Overview: In this White Paper, we explore in detail the issues facing retirees, the alternatives being developed or that already exist to address retirement income adequacy and the legal issues that plan sponsors must consider in offering a lifetime income solution for their participants. (When we use the term “plan sponsor,” we aregenerally referring to the responsible plan fiduciary of a retirement plan.) In particular, we focus on the fiduciary issue of selecting a lifetime income provider. This issue arises because payments to a retiree may not commence for a number of years and then may be made over a period of several decades. The fiduciary challenge is to select a provider today that will be there in the future to make

The Hybrid DB/DC Plan Model: An effective approach for government pension providers
Overview: Historically, state and local governments have considered defined benefit (DB) plans to be the fundamental component of a successful employee retirement program. But deep rooted financial issues have challenged the sustainability of traditional DB plans in recent years, and for some the continued ability to deliver on promised benefits is seriously in question. Given these stark realities, many governments are now examining whether traditional 401(k) plans can help, but they are finding that these plans have their own shortcomings that make them unsuitable as vehicles for providing adequate and secure retirement income. Many legislators and government professionals remain unfamiliar with how hybrid DB/DC plans are structured. To better familiarize them, this paper explores the components of these plans and specific plan provisions.