MassMutual Financial Group has launched the MassMutual Barings Dynamic Allocation Fund, a go-anywhere strategy it will market primarily to retirement plans.
The fund will typically have a 70/30 split between risk assets, such as global equities, real estate and commodities, and fixed-income. It does have the ability to get as conservative as 50/50, depending on market conditions.
“After 2008, participants are concerned about equity funds that remain static,” said Mike Eldredge, vice president at MassMutual's Retirement Services Division. “They want something that can react to the market and get defensive if things go south.”
Global go-anywhere funds remain popular despite lackluster returns. The average fund has lost about 5.6% year-to-date, according to Morningstar Inc., but investors have poured approximately $16 billion of new money into the funds through the end of November, fourth most of any mutual fund category.
There are concerns, however, that participants may not be ready for global go-anywhere funds. Paula Hendrickson, director of retirement services at First Western Financial Inc., said the MassMutual fund probably will help lower the volatility of a portfolio, she would likely stay away from recommending the fund as a stand-alone option to the plans she works with because participants probably won't understand the risks. “Ninety-five percent of participants we work with aren't sophisticated in investments, or just don't care,” she said.
Ms. Hendrickson also is concerned that participants could get the mistaken impression that a go-anywhere fund has the same goals as a target-date fund, which is managed to get more conservative as participants get older, and is generally seen as the best option for the majority of participants. Mr. Eldredge said the MassMutual fund is intended to be used as a complement to target date funds and other allocation funds.
Mallory Horejs, an alternatives analyst at Morningstar, added that the fund's flexibility could cause some participants to overweight asset classes, such as equities or commodities, and take on extra risk without realizing it. “We're going to be working with plan sponsors and their advisers to make sure the fund is the right fit for their participants, and the proper education is in place,” said MassMutual investment director Bruce Picard.
Jason Kephart writes for InvestmentNews, a sister publication of Pensions & Investments.