AB Unveils New Blueprint For Improving Retirement Outcomes
Research from Global Asset Manager Reveals Best Practices for US Target-Date Design
Next-Generation Target-Date Funds Should Tap New Asset Classes, New Approaches to Handling Volatile Markets and Multi-Manager Structure
NEW YORK, June 22, 2015 /PRNewswire/ -- AllianceBernstein L.P. ("AB"), a leading global investment management firm, released today its latest research, "Designing the Future of Target-Date Funds: A New Blueprint for Improving Retirement Outcomes." The research reveals that many of today's target-date funds fail to incorporate institutional-quality investment solutions and fiduciary best practices that are commonplace across most large, professionally managed portfolios. Despite the new tools available to target-date funds, most retirement plans are still using traditional portfolio designs developed years ago.
AB's research paper argues that target-date funds are becoming the most critical pool of assets for meeting the retirement needs of American workers. Over the last decade, new investment tools have come to market that allow sponsors to incorporate an improved glide path design with a broader set of asset classes, dynamic allocation and a multi-manager or open architecture structure—enhancements that may reduce risk and help build retirement income. Despite the availability of these tools, many target-date strategies typically use a single-manager approach, focus only on stocks and bonds, have a limited static allocation strategy, and stick entirely with active or passive investing approaches rather than mixing the best of both.
This legacy approach of portfolio design could have fiduciary implications, particularly in light of the U.S. Department of Labor's (DOL) recent commentary in its "Tips for ERISA Plan Fiduciaries," which noted that non-proprietary target-date funds could offer advantages to plan participants by diversifying their exposure to investment providers. The research stresses that plan sponsors should look to adopt a broader range of available investment strategies that can help reduce sensitivity to market, interest-rate, inflation and longevity risks at different points in the portfolio's glide path.
"While target-date fund assets have grown rapidly, innovation in these funds' investment designs have occurred at a shockingly slow pace," said Dan Loewy Chief Investment Officer and Co-Head Multi Asset Solutions at AB. "Our latest research creates a blueprint for target-date design that provides plan sponsors with a clear roadmap for building retirement income for the future. We're looking to provide a target-date design of tomorrow that utilizes a multi manager, open architecture structure, incorporates a broader collection of diversifying assets and that can dynamically adjust the glide path according to market conditions, tapping the best of active and passive investment approaches to create better solutions for participants' distribution phase."
AB's research paper reveals five key areas that will be crucial for evolving the state of current target-date design:
- Moving from a single investment manager to a multi-manager, or open-architecture, format that accesses best-of-breed managers and reduces concentration risk.
- Diversifying the underlying investment mix from a traditional stock/bond glide path to incorporate nontraditional asset classes.
- Providing greater flexibility to respond to short-term market fluctuations with a dynamic, rather than static, approach.
- Mixing active and passive investment strategies to enhance risk-adjusted returns and manage costs.
- Calibrating the glide path to deliver better results in the distribution phase of a retirement plan.
A full copy of AB's research paper, "Designing the Future of Target-Date Funds," can be downloaded here.
About AB
AB is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private wealth clients in major world markets.
As of March 31, 2015, AB Holding owned approximately 36.8% of the issued and outstanding AB Units and AXA, one of the largest global financial services organizations, owned an approximate 62.7% economic interest in AB.
Additional information about AB may be found on our website, www.abglobal.com.
SOURCE AllianceBernstein L.P.
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