AllianceBernstein, having expanded the diversification of its target-date funds earlier this year to mitigate the effects of inflation, has just issued a white paper discussing the importance of grappling with inflation risk.
The paper, “Enhancing U.S. Target-Date Funds: Addressing Inflation Risk,” discusses how inflation risk can be hedged, several hedging strategies, how to tell if those hedging strategies are effective and specifically how target-date funds can address inflation risk.
Earlier this year, AllianceBernstein expanded the holdings of its Retirement Strategies target-date funds to include inflation-sensitive securities, such as commodity stocks and futures, real estate investment trusts and inflation-linked bonds. In 2010, AllianceBernstein added components to its target-date funds to address market volatility.
"Our clients—in both our Retirement Strategies target-date mutual funds and our Customized Retirement Strategies service which provides custom target-date portfolios for large defined contribution plans—have expressed a growing interest in inflation risk," said Thomas J. Fontaine, head of AllianceBernstein Defined Contribution Investments. “Inflation is a key risk to address when investment for one’s retirement since it can rapidly erode the purchasing power of a portfolio. Given that target-date funds have become the default investment vehicle in many defined contribution plans, it’s critical these funds provide plan participants with sufficient protection against inflation.”