The Markets October 4, 2016

Analysis Shows Conservative DB Allocation Fares Better Long-Term

A traditional 60/40 portfolio is up more than 7% so far this year, while a conservative 20/80 portfolio remains up almost 10% through the first three quarters of 2016, according to October Three.
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Pensions enjoyed modest improvement in funded status last month, but remain underwater during 2016 through three quarters, according to October Three.

Both model pension plans it tracks improved by less than 1% in September. For the year, Plan A is down 5% and the more conservative Plan B is down less than 1%.Plan A is a traditional plan (duration 12 at 5.5%) with a 60 equity/40 fixed-income asset allocation, while Plan B is a cash balance plan (duration 9 at 5.5%) with a 20 equity/80 fixed-income allocation with a greater emphasis on corporate and long-duration bonds.

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October Three notes that stocks mostly edged up in September: the S&P 500 was flat, but the NASDAQ added 2%, the small-cap Russell 2000 earned 1%, and the overseas EAFE index was up more than 1%. For the year, the S&P 500 is up almost 8%, the NASDAQ is up 6%, the Russell 2000 is up 11% and the EAFE index is up 2% through three quarters.

A diversified stock portfolio gained less than 1% during September and is now up almost 7% through the first three quarters of 2016.

Interest rates moved up a bit last month, mostly at longer maturities, producing losses of less than 1%, on bond portfolios in September. For the year, bonds remain up 8% to 10%, with longer duration bonds enjoying the best results.

Overall, the firm’s traditional 60/40 portfolio gained a fraction of 1% during September and is up more than 7% so far this year. The conservative 20/80 portfolio was down fractionally last month but remains up almost 10% through the first three quarters of 2016.

The stock market has bounced back from losses in early 2016, posting modest gains so far this year, and bonds have done even better on the strength of lower interest rates. These gains have not kept up with increase in pension liabilities however, which are driven by the same decline in interest rates and remain near record low levels.

However, October Three’s analysis shows its 60/40 plan has a much larger gap in liabilities to assets than the more conservative portfolio.

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In Practice October 4, 2016

Asset Manager Distribution Strategies Shift With the Times

Internal investment product wholesalers are pursuing advanced degrees and designations to improve their image as “knowledge partners” in the eyes of advisers, according to new Cerulli Associates research.

 

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A new report from Cerulli Associates finds that internal investment product wholesalers are becoming more outcome-focused and entrepreneurial—providing more advanced support to advisers in the field and potentially even opening up new career opportunities.  

“The changing nature of the internal role prompts sales managers to re-evaluate the way they measure internal wholesalers’ performance and warrants a discussion of whether quantity or quality matters most,” explains Emily Sweet, senior analyst at Cerulli. “Credibility is a huge factor of success for internal wholesalers, which is why many are pursuing advanced degrees and designations such as the CIMA and CFA in order to advance their careers as knowledge partners in the eyes of advisers.”

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The findings are from the October 2016 issue of The Cerulli Edge U.S. Edition, which examines the way institutional asset managers are realigning internal and external teams to address market pressures and confront more complex client needs.

“In an attempt to keep internals engaged and expand adviser coverage, distribution teams are carving out segments of advisers in each territory and assigning them to internals,” Sweet says. “This gives internals a chance to prospect and build their own client base, making the job more challenging and engaging.”

Cerulli Associates suggests asset managers are coming into general agreement that “there is little place for administrative tasks and pushing products.” Advisers and wholesalers instead want to work together to meet advanced client needs and develop brand trust and loyalty.

“As the internal wholesaling job description changes, career paths are evolving,” Sweet adds. “As a result of increased training, a higher level of investment sophistication, and frequency of advanced degrees and designations, the internal sales desk is more frequently viewed as a feeder system for the whole company, rather than just a training ground for external wholesalers. This results in more diverse career opportunities available, than historically has been the case, for internals.”

More information about obtaining Cerulli Associates research, including “The Cerulli Edge – U.S. Edition,” is available here. 

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