The series of five broadly diversified risk-based portfolios is aimed at 401(k) plan sponsors and participants who are looking for retirement investments that offer two critical layers of risk management—diversification and an active process of managing the threat of significant market losses, or tail risk.
The AlphaSector Target Risk Funds employ F-Squared’s strategies to systematically de-risk equity and fixed-income portfolio investments in challenging or bear markets, and then to re-risk as markets become more favorable. The funds are globally diversified and are allocated across four existing F-Squared investment strategies that encompass U.S. equities, international equities, fixed-income and alternative asset classes. The allocation to each strategy depends on the risk tolerance of each fund.
All of the new funds employ strategies designed to de-risk by eliminating sectors within each asset class that are expected to generate near-term losses for investors. They may also invest aggressively in cash equivalents to minimize losses from equity and fixed-income investments.
Research by F-Squared has shown that most current retirement investments, including popular target-date and target-risk funds, lack tail risk management and are not designed to react to significant market downturns. "During severe market downturns, traditional products are 'locked in' to the market decline because of their buy-and-hold approach. In the financial crash of 2008 to 2009, even broadly diversified target-date funds suffered significant losses," said Bill Carey, president of F-Squared Retirement Solutions.
The portfolios, which utilize low-cost exchange-traded funds (ETFs) as underlying vehicles, are available as collective trust funds through Reliance Trust Company of Atlanta, Georgia.
F-Squared was named in PLANSPONSOR’s Best Managers class of 2011 (see “The Best Managers You Haven’t Heard of – Yet”).
More information about the company is at http://www.f-squaredinvestments.com.