PLANSPONSOR - October-November 2022 - 28

INVESTMENTS | FIXED INCOME
could be beneficial for participants who
choose to remain invested in their former
employer's plan when they retire. " Targetdate
managers will be heavily managing
their glide paths right now and looking
at their exposures, " she says. " For individuals
who aren't invested in a targetdate
fund, it may be worth looking at what
the current allocation is and determine
whether there's an opportunity to add on
more opportunistic strategies. "
Embrace Volatility
While the fixed-income side of the portfolio
may start playing a bigger role than it
has in the past, Mandinach says it is important
not to count out equities.
" Investors have to keep thinking longterm
even when they are in retirement.
You're still managing a 20-year portfolio
more than likely, so equities need to be
part of that picture, and that means investors
will have to embrace volatility, " he says.
Mandinach adds
investors
that,
environments such as these,
tendency for
to
in market
there is a
think maintaining
a large cash position will help
them take advantage of well-priced equities
in a downturn. But market timing
often comes at a significant cost and has a
mixed track record at best.
" We're talking to folks about
Are Bonds Back?
Research says the strategy could significantly boost returns
For investors hoping to meet a 7.5% return-the typical return expected by most retirement
plans-they may have to significantly increase their bond allocations according to new
research from BlackRock. As of September 30, almost 90% of fixed-income indexes have
been yielding more than 4%, for the first time in 15 years.
BlackRock looked at several periods in recent history to analyze how bond allocations
can affect investment returns over time. In 1995, a 100% allocation to bonds would have
generated a 7.5% return. In 2005, investors got 7.5% with 40% in stocks, 50% in bonds and
10% in alternatives. In 2015, portfolios needed a mix of 63% stocks, 35% alternatives and
12% bonds. For 2022, the mix is 15% in stocks and alternatives, with 85% in bonds.
" The big takeaway for us is that there are many ways you can slice and dice portfolio
allocations to meet return goals, " explains Steve Laipply, U.S. head of bond ETFs
[exchange-traded funds] at BlackRock in San Francisco. " So if you're looking at portfolios
over the next handful of years, it's going to be worthwhile to look at the rebalance
opportunities and keep an open mind about what the mix is. "
Laipply says, over the near term, there is an opportunity for investors to diversify their
allocations to fixed income in their portfolios and generate income. " We're not saying it has
to be a significant increase in risk assets, but if you're making a nontrivial allocation to riskier
parts of fixed income, it's more likely you will meet your return goals, " he says. -BM
Allocations in 2015 vs. 2022
The mix required for a plan with a 7.5% return target to meet its goal.
l U.S. small cap
l Non-U.S. equity
l Real estate
l Bonds
l Private equity
l U.S. large cap
8%
8%
12%
12%
13%
Source: iShares, a subsidiary of BlackRock
2015
22%
33%
2022
85%
7%
increasing the quality tilt in a portfolio, "
he says. " These are companies that will be
able to withstand higher cost of capital; they
will probably be able to withstand diminished
economic conditions. What you want
to be able to do is live to fight another day,
so that could look like shifting into higherquality
but slower-growth companies and
then looking at growth stocks again when
conditions start to improve. " In this way,
investors are allocating with the volatility
rather than sitting on the sidelines.
Look at the Lineup
Individual investors are not the only ones
who should be thinking about retirement
income solutions right now. Plan sponsors
do have a role to play. They are likely
getting an earful from participants, and a
good first step could be getting proactive
about telling participants what options are
available for professional advice within the
plan, such that it is available.
Asset managers are also working on
solutions for the decumulation phase, and
plan sponsors may want to spend more
time getting familiar with those solutions.
Yon Perullo, CEO of RiXtrema, a firm
that works with plan sponsors on plan
design and risk management, in Bend,
Oregon, says, as we approach the end of the
year and plans come under review, now is
a good time to look closely at the offerings
and see if adjustments should be made.
" We're having more conversations
about what's in the lineup and what can
be added to make plans more responsive
to current conditions, " he says. " There's no
magic bullet for an environment such as
this, but challenging conditions can often
expose gaps in an offering, and those can
be addressed. " -Bailey McCann
28 PLANSPONSOR.COM October - November 2022
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PLANSPONSOR - October-November 2022

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