HOT SEAT: TARGET DATE FUNDS’ PREPARATION FOR THE MARKET WYATT LEE, CFA® Portfolio Manager
James Venerus, CFA, CAIA
PRESIDENT OF RETIREMENT ADVISOR PRACTICE BUILDER
SENIOR VICE PRESIDENT OF CALLAN LLC
Andrew: Has there been any thought, planning, or strategy around potentially adjusting the glide path or investment mix to prepare for the end of the current boom market and the inevitable turnover at whatever point that happens?
James: Where do you see the market going in the next ten years and do you foresee target date funds maintaining their dominant position as the QDIA of choice?
Wyatt: We often spend time thinking about forward looking market events but that doesn’t necessarily come into play in our strategic design of our strategies. Our approach has been typically to think about first of all the long term strategic approach that’s right to meet a portfolio’s objectives and then layering on tactical management on top of that to react to our more intermediate term outlook. We keep a reasonable amount of growth exposure in the portfolio because we prioritize the need for growth over volatility. On the other hand we also manage a series of portfolios called the target funds that put the relative weight of those objectives in a different order. There’s more priority around minimizing or reducing volatility around retirement with income orientation a secondary objective.
Wyatt: It’s probably not a fair stretch to say that target date funds might remain relatively solidly placed in terms of younger investors. Those investors who have a long time horizon relatively small asset base, a target date fund can work really really well for. But as you move forward, get closer to and into retirement, something that more personalizes to the wider range of objectives or potentially something that provides different streams of income could be a way to more personalize this. So ultimately where I could see this going is an extension from the target date space to make sure we address a wider range of goals and circumstances. Which ultimately puts the pressure on those of us who are providing target date strategies to be able to deliver their asset allocation methodology in as many ways as possible.
6 | REVIEW ASSET TV | Q2 2019