To enable portfolio managers of its target-date funds to respond more nimbly to extreme market volatility, starting in April, AllianceBernstein will allow these funds to move up to 20% of their assets from equities and real estate investment trusts into bonds and cash.
AllianceBernstein is calling this a “volatility management component” and says it is in response to many of the criticisms levied at target-date funds following poor performance due to high equity exposure in 2008.
Unlike tactical asset allocation, which focuses on particular asset class returns in the short run, AllianceBernstein says, volatility management is centered on balancing risk and return.
“We believe our new risk management tools will allow us to adjust portfolios during extreme market cycles such as the recent credit crunch, moderating short-term negative performance—but, importantly, without sacrificing long-term return potential,” said Thomas J. Fontaine, head of defined contribution.
AllianceBernstein will explain shifts in defense strategies to investors in its target-date funds, making the process completely transparent.
“This important enhancement is the result of a multi-year firmwide research effort, which created new tools we believe can be applied to ‘smooth the ride’ and improve retirement outcomes for defined contribution plan participants,” said Seth J. Masters, chief investment officer of blend strategies and defined contribution at AllianceBernstein. “The project demonstrates our ongoing work to deliver our best thinking on target-date design to plan sponsors and investors.”