Retirement Plan Investors Abandoning Asset-Class Preference

Between 2013 and 2015, the number of investors indicating they would use multi-asset class funds in the subsequent three years increased significantly across multiple investor types, according to the findings of a survey by CREATE-Research and commissioned by the Principal Financial Group.

The research report, “Asset Allocation: Survival of the Fleetest,” analyzes data from the 2013 to 2015 CREATE-Research surveys, with a focus on asset allocation investment trends in the defined benefit, defined contribution, retail, and high net worth investor classes. While the search for yield is nothing new, it has intensified significantly in the two years analyzed.

Investors are abandoning their asset class preference for a multi-asset approach that chases short-term opportunities in the face of valuation-distorting quantitative easing programs in the United States, Europe and Japan.

The survey finds defined benefit (DB) plans have increasingly favored infrastructure and real estate (for capital growth, inflation protection and regular income), traditional passive funds, global equities, low-variance equities and alternative credit (for high yield). During the same time, bonds and emerging market equities and bonds have fallen out of favor.

Defined contribution (DC) plans have moved toward advice-embedded products and increasingly favor diversified income and diversified growth funds; target-income, target-date and target-risk retirement funds, and passive equity/bond funds; while actively managed equities and bonds showed a decline.

“Asset allocation, with a focus on outcome-oriented investing, has taken on a new importance for investors as they seek to manage market volatility and ultra-low interest rates,” says Julia Lawler, senior executive director of Principal Portfolio Strategies, an asset allocation boutique of Principal Global Investors. “With an eye toward retirement, they seek a wide range of investment strategies using a blend of bond and conservative equity exposure to provide diversification designed to deliver an income stream and capital appreciation, while reducing volatility risk. More than ever, asset allocation is an important strategy across all investor groups.”

The findings are based on a survey of more than 700 pension plans, sovereign wealth funds, asset managers, pension consultants and fund buyers across 29 fund jurisdictions, with a combined AUM of $26.8 trillion. The report is available at https://www.principalglobal.com/knowledge/insights/asset-allocation-survival-fleetest.