Data & Research July 31, 2012

Unpredictable Market Conditions Challenge Advisers

Most advisers (95%) believe their investment strategies will help clients meet retirement income needs, despite the challenges of managing volatility and generating sufficient income for current retirees.
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“The current low-interest-rate, high-volatility environment makes it difficult for investors to achieve their retirement goals,” said John T. Hailer, president and chief executive officer of NGAM – The Americas and Asia, whose firm released a survey today. “It’s encouraging that so many advisers believe they have the tools and strategies to help clients navigate these challenges, but most advisers know there’s still a long way to go, in terms of building more durable portfolios.”

Client Concerns  

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The majority of advisers (81%) say clients continue to be concerned about the long-term durability of their assets, including meeting their retirement income goals, outliving their assets (81%) and continuing declines in value of the real estate they own (59%).

“Americans are no longer in denial about real estate values, and they recognize how this impacts their financial well-being, particularly in retirement,” said Hailer. “When real estate values decline, as they have during the past several years, this has a dramatic impact on financing retirement, and Americans realize that.”

Market Volatility Raises the Stakes for Advisers  

Four in five advisers (81%) also reported that it will be difficult to effectively manage volatility risk for those in retirement, with four in 10 (41%) saying it was “extremely difficult.”

But advisers are confident over the long term. “Advisers recognize they have the tools to build portfolios that can weather market volatility,” said Hailer. “The challenge lies in educating clients about the need to make smarter use of traditional asset classes and embrace alternative investments, commodities, hedged equities and other investments that can reduce risk in a portfolio.

“The survey findings underscore the importance of advisers and other financial professionals providing their clients with the information and tools they need to make sound decisions about their personal savings objectives, risk tolerances and retirement goals.”

Advisers Oppose Scaling Back 401(k) Incentives  

In the area of public policy, 81% of advisers oppose proposals in Washington to scale back retirement savings incentives for 401(k) plans.

The survey, which was conducted in March, is based on online responses from 163 advisers at 150 advisory firms that collectively manage about $670 billion in assets.

Products July 31, 2012

Series of Target-Risk Retirement Funds Launched

F-Squared Investments will serve as sub-adviser for the newly launched Reliance Trust AlphaSector Target Risk Collective Trust Funds.

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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.   

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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.

 

(Cont...)

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.

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