401(k) Consultants Focusing on Preservation, Risk Management, Target-Date Funds
Consultants to 401(k)s and other defined contribution plans are carefully analyzing, and in some cases replacing, the plans' money market, stable value, inflation-protection and target-date offerings, PIMCO found in a survey.
Sixty-one percent of those surveyed said they expect plans they advise to add a Treasury or government-only money market fund and a stable value fund.
Thirty-five percent said sponsors are looking at the asset allocation mix in their target-date funds, leaning toward more conservative and better diversified funds. The majority agreed that target-date funds will become the preferred investment default for DC plans, and two-thirds are promoting customized target-date portfolios.
Perhaps most interestingly, 78% believe that DC sponsors will consider adding guaranteed income options over the next two years.
"Given the extreme market volatility and significant decline in DC account balances over the past year, it's not surprising that DC plan sponsors are focused on reducing the risk that participants face," said Stacy Schaus, senior vice president and defined contribution practice leader at PIMCO. "Consultants are helping clients evaluate their DC plan investment structures, often to dial down risk and improve the likelihood that the plans will meet participants' retirement income goals."
Conservative Funds, Better Customer Service Expected to be New Focus
Conservative offerings and more focused customer attention will be the tenants of the fund industry going forward, according to speakers at the recent "Future of Fund Management" conference in London.
In a presentation called "Winning the War for Assets," M&G Securities Chief Executive Officer William Nott said that asset managers have to work hard to regain investors' trust by offering better transparency and improving long-term performance.
Edward Carter, chief executive officer of Jupiter Asset Management, agreed, saying, "Customers do not want volatility, complexity, excessive charges and disappointing returns. They want rising income, capital protection and, most importantly, value for money."
At Man Group, said CEO Peter Clarke, "During the year, we continued to see private investor demand for conservatively structured products offering transparency and liquidity, and which have demonstrated a track record of performance through these markets."
Treasury Extends Money Market Guarantees
The Treasury Department extended its $3 trillion temporary guarantee program for money market mutual funds through Sept. 19 to provide continued reassurance for investors.
The program, which was scheduled to expire on April 30, will continue to provide coverage for shareholders up to the amount they had invested in a participating fund as of Sept. 18, 2008. Funds that currently participate in the program must file for the extension by April 13 and meet certain requirements.
New funds will not be eligible for the program, Treasury said.
Money market funds will continue to pay the Treasury a fee for participation based on their net asset value as of Sept. 19, 2008, and relative to their size. The cost of participation should equal four or six basis points on an annualized basis of a fund's asset base for the entire program, the Treasury said.
The Treasury established the backstop on Sept. 18 to prevent a wave of investor withdraws from money market funds after the $65 billion Reserve Primary Fund "broke the buck" two days earlier.
96% of Variable Annuities Sold in 2008 Have GLBs
Guaranteed living benefits are driving sales of variable annuities, Milliman found, with 96% of those sold in 2008 including GLBs, up from 87% in 2004.
Existing policyholders also gravitated to GLBs, with 69% purchasing them in 2008, up from 52% in 2004.
There are four types of GLBs: guaranteed minimum income benefits (GMIBs), guaranteed minimum withdrawal benefits (GMWBs), guaranteed lifetime withdrawal benefits (GLWBs) and guaranteed minimum accumulation benefits (GMABs). GLWBs have been gaining in popularity, accounting for 93% of all GLB sales. Conversely, GMWBs have been decreasing in popularity.
Young Adults Keen On Financial Responsibility
Young adults between the ages of 23 and 28 are more worried about being "financially fit" than "physically fit," Charles Schwab found in a survey of 1,252 people conducted in January.
Fifty-two percent said that "making better choices about managing money" is the single most important issue for Americans today, outpacing the 18% that cited strengthening family relationships and 11% who said protecting the environment is the most critical issue. Only 9% cited improving personal nutrition and health.
In terms of education in school between kindergarten and grade 12, 51% said that financial education is the most important, followed by physical education (31%) and sex education (18%).
"This age group is clearly riveted by our weakened economy," said Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation. "When we see people in their 20s prioritizing responsible money management over personal nutrition and health, it seems clear that the need for individual accountability has penetrated deeply into the culture.
"Without diminishing the importance of good health, these results are very encouraging and could signal a new era of financial responsibility among American consumers," Schwab-Pomerantz continued.
Twenty-six percent of survey respondents said they were surprised to find out how much it takes to live independently, and only 51% are financially independent from their parents. More than a quarter still live with their parents, and 28% are unemployed.
Twenty-something year-olds' interest in finance presents a tremendous opportunity for 401(k) sponsors and administrators, Schwab notes, since only 31% of this age group say they are familiar with their employers' financial benefit plans, and 30% aren't contributing to their 401(k) plan
CVC Capital in Exclusive Talks to Buy iShares
CVC Capital Partners of Britain is in exclusive talks with Barclays to purchase its iShares exchange-traded fund unit for more than $4 billion.
Barclays issued a statement confirming that CVC Capital Partners is "a preferred bidder. If these negotiations reach a satisfactory conclusion, it would lead to a sale of Barclays iShares business without the attributable securities-lending business. Earlier speculation assumed the sale of both iShares and securities lending"
Other companies that were reportedly interested in the unit include Fidelity, Goldman Sachs and Vanguard.
160 ETFs Launched in '08
Exchange-traded funds continued to grow in popularity, despite last year's poor market performance, as investors continue to look for ways to cut management fees.
According to TrimTabs, there were 160 new ETFs launched in 2008, compared to 21 new mutual funds. Net inflows to U.S. equity ETFs were $120.8 billion in 2008, versus $162.4 billion in net outflows for U.S. equity mutual funds.
A recent survey by Charles Schwab found that 79% of registered investment advisers say they consider ETFs as their top investment vehicles for clients.
"If you're a traditional fund manager and your strength is active management expertise, then you can consider developing an actively managed ETF that provides a low-cost and flexible vehicle to deliver your talent," Loren Fox, senior research analyst at Strategic Insight, told Forbes.com.
ETF assets rose 77% from 2005 to 2008, while mutual funds rose 9%. ETFs now account for 40% of the market share of all index funds.
2008 Destroyed Many Stellar Track Records
Because of the havoc that 2008 wreaked on so many investors' portfolios, 46% of the 468 diversified U.S. equity funds that have had the same manager for the past decade, have negative returns for the 10 years ended Feb. 28, The Wall Street Journal reports. By comparison, the S&P 500 fell 3.4% on average over the past 10 years.
One fund whose track record was shattered is the Hodges Fund, which declined 49.5% last year and is down 11% year-to-date. Before then, it was one of the best-performing funds around.
Portfolio manager Donald Hodges says he is more than embarrassed about what the market has done to his clients. "You carry it with you every place you go because you have friends investing with you," he said. Thus, he is reaching out to his clients to calm their fears and has become more conservative about his portfolio.
Another fund that was consistently in the top quarter over the past 10 years through 2007, the Legg Mason Growth Trust, fell 60% in 2008 due to exposure to financial services.
The Neuberger Berman Partners Fund, likewise, had a great track run but was pummeled with a 52% loss in 2008. "Our numbers were fantastic through June, and then we fell off the cliff-massively," said Portfolio Manager Basu Mullick.
Americans Still Committed To Investing, AARP Finds
Without divulging the figure, AARP said "many" Americans it surveyed are still committed to saving and investing for retirement. Most respondents said that they believe the current market turmoil has slowed their retirement progress, but will not halt it.
Conversely, one-third said they don't ever expect to have enough saved to be able to leave the workforce, and 70% believe no one is looking out for the average investor.
"Clearly, everyone's situation is different, but overall, we believe now is the time to remain focused on the long-term and not use the current economic uncertainty and market volatility as an excuse to delay saving, investing or planning for retirement," said AARP Financial President Richard "Mac" Hisey.
AARP stresses that investors should remain committed to saving for retirement, regardless of short-term changes in the market.
Phased Retirement Can Benefit Baby Boomers, Employers Alike: Deloitte
Companies can reduce labor costs and retain key talent for continued smooth operations by considering phased retirement, Deloitte recommends. And for workers, it protects their retirement income for a longer period of time.
"The potential benefits for a business are even greater," Deloitte said. "Phased retirement allows you to reduce your labor costs without undermining morale and productivity. Best of all, it lets you hold onto your most experienced workers so they can share their knowledge with others, and provides ready source of talent for when the economy recovers."
778 Hedge Funds Closed In Fourth Quarter of 2008
Fifteen percent, or 778 hedge funds, closed in the final quarter of 2008, directly due to the financial markets meltdown, according to Hedge Fund Research. That topped the previous record for quarterly closings, which occurred in the third quarter of 2008 when 344 hedge funds shut down.
For the entire year, 1,471 hedge funds closed, 15% of the universe, leaving a remaining 9,284 funds.
For the entire year, 659 hedge funds opened, 56 of them in the final quarter.
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