Products November 14, 2013

Don’t Know Much About … Alternatives

Advisers can help clients demystify liquid alternatives with a digital education campaign from AllianceBernstein LP.
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Liquid alternatives are a growing investment category, but many investors find them complex. AllianceBernstein’s interactive website is designed to explain the array of liquid alternative strategies available, illustrate how they might fit into diversified portfolios, and explain how they may be used to either mitigate risk or enhance returns.

A 12-question challenge called “Bring your ‘A’ Game” assesses the user’s knowledge of liquid alternative investments and is designed to guide advisers in helping clients better understand the category.

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Topics range from the Sharpe ratio (which measures an investment’s return per unit of risk) and how it is calculated to yield-curve “flatteners.” Not a superhero move, the quiz tells you, but a trading strategy aimed to profit when a yield curve flattens.

Each question has a tip box that can be moused over to bring up an explanatory chart or graphic. Answers are detailed and technical, but useful to the investor looking to learn about the subject. As an example of a “flattener” trade: “As yields rise, prices fall; as yields fall, prices rise,” the answer helpfully tells the quiz-taker. “If short-term yields rise while long-term yields fall, a short position in two-year yields and a long position in 10-year yields is likely to profit, if the curve flattens.”

Many investors prefer information that is digital as well as interactive, noted Robert Keith, head of AllianceBernstein’s client group, making it essential for advisers to have dynamic resources available that let them easily walk clients through the benefits of liquid alternative investments. 

“Many investors have rightly recognized that they may need to look beyond the traditional 60/40 investment portfolio and incorporate alternative strategies that focus on balancing risk and return in today’s more volatile market,” Keith said.

Advisers can view the site and test their alternative investment IQ at: www.alliancebernstein.com/go/alternatives.

The Markets November 14, 2013

DC Market Could Surpass $4.2T Next Year

The 401(k) market’s annual growth rate is holding at 9% and could push total assets beyond $4.2 trillion next year, a report from Ignites Retirement Research shows.
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That’s up from a base of $3.6 trillion in total private DC plan assets measured at the start of 2013, but the growth would represent a slowdown from the 11.4% rate at which 401(k) assets grew in 2012.

According to the report, called “Where DC Markets Will Grow,” financial market performance driven by an improving U.S. economy will be an important factor for industry growth in 2014.

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In an interview with PLANADVISER, Ignites research director Tom Modestino said he expects strong investment performance within private DC plans to cover expanding outflows as early waves of Baby Boomers hit retirement and start drawing from 401(k) accounts.

“The 401(k) market has hit a maturity phase that will feature slightly slower growth,” Modestino says. “Yet it’s still a very desirable segment to asset managers because of dependable and regular contributions, showing strong loyalty.”

The report shows the 2008-09 financial crisis led to steady declines in the total number of private DC plans from 2009 to 2011. But an improving economy in 2012 drove the creation of 653,000 new DC plans during that year.

Modestino says his firm expects that number to continue to rise moving forward, increasing by 0.5% during 2014. Still, there will almost certainly be fewer private DC plans in operation by the end of 2014 than existed in 2008.

Other findings in the report suggest retiree withdrawals will be only partly offset by the use of automatic 401(k) enrollment features. In fact, the number of active DC plan participants grew by 2.8% per year from 2007 through 2012, and the report projects that pace to slow to 2.5% in 2014.

The report suggests there are many opportunities for both 401(k) plan providers and asset managers to strengthen their position in the market by offering low-cost access to investments that meet the changing needs of participants.

“The world of 401(k) plans is growing more complex, and demanding more from providers even as it slows a bit,” Modestino says. “From a competitive standpoint, asset management companies will increasingly fight to maintain or grow market share.”

More on the report and Ignites Retirement Research is available at http://retirement.ignites.com/.

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