Real assets potentially offered three key investment benefits: Income, diversification and returns.
Despite their potential additive benefits, real asset strategies are simply not being utilized by most plan participants.
A diversified real assets strategy can be integrated into the investment lineup as either a standalone core menu option, or within a target date or target risk portfolio.
It is no surprise that effective diversification remains one of the most useful tools plan sponsors have to help strengthen potential retirement outcomes for participants. So why do so many participants still remain so poorly diversified?
As of June 30, 2022, the vast majority of US defined contribution (DC) assets were invested in target date funds (32.8%) as well as traditional US equity (32.8%), stable value (10.0%), and US fixed income (8.9%). Only 1% was invested in expanded “portfolio diversifier” categories, such as Treasury Inflation-Protected Securities (TIPS), real estate, and alternatives.1 That is in sharp contrast to similar retirement plans abroad, such as Australia’s arguably more developed DC system that, on average, held alternatives allocations of approximately 22% as of June 30, 2020.2
The category covers a wide range of investments, including global infrastructure, real estate, and commodities. Treasury Inflation-Protected Securities (TIPS) are also frequently included in diversified real assets portfolios, given their link to inflation.
Today, DC plan sponsors can choose from a range of diversified real assets solutions to help offer participants an efficient way to tap into this compelling set of diversifiers — all packaged together in one easy-to-access, professionally managed investment solution.
In this article, we dive into the three compelling investment characteristics – income, diversification, returns – of real assets.
Learn more about real assets, including the three questions to ask to determine if real assets are right for your plan.
Callan DC Index, data as of June 30, 2022.
ASFA, Superannuation Statistics August 2022, data as of June 30, 2022.
25 years in large value equity
Kevin Holt has been managing large value equity portfolios for 25 years. He reviews what has changed since he started, the current environment, and what’s ahead for large value equity portfolios.
Adding Value: Shining a spotlight on large-cap value strategies
Recent market volatility has refocused attention on large-cap value strategies to help broaden diversification and strengthen return outcomes for participants.
Mind the gap
DC plan sponsors and their advisors may want to reexamine their mid-cap offerings to help expand on the full potential the asset class offers.
Get the latest information and insights from our portfolio managers, market strategists, and investment experts.
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A target date fund identifies a specific time at which investors are expected to begin making withdrawals, e.g., now, 2025, 2030. The principal value of the fund is not guaranteed at any time, including at the target date.
A target risk fund is a type of asset allocation fund that holds a diversified mix of stocks, bonds, and other investments to create a desired risk profile. The fund manager of a target risk fund is responsible for overseeing all the securities owned within the fund to ensure that the level of risk is not greater or less than the fund’s target risk exposure.
Alternative products typically hold more non-traditional investments and employ more complex trading strategies, including hedging and leveraging through derivatives, short selling and opportunistic strategies that change with market conditions. Investors considering alternatives should be aware of their unique characteristics and additional risks from the strategies they use. Like all investments, performance will fluctuate. You can lose money.
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