Products May 26, 2022

Investment Product and Service Launches

Putnam Investments to develop suite of sustainable retirement target-date funds; PGIM Investments expands actively managed fixed income ETF lineup; Nationwide adds new solution to address market volatility; and more.

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Art by Jackson Epstein

Putnam Investments to Launch Three Active Equity Exchange-Traded Funds

Putnam Investments has announced that it will launch three actively managed, transparent exchange-traded funds in the coming months, pending completion of the normal regulatory filing process.

The new ETFs will each have a distinct investment focus. The Putnam BDC Income ETF will focus on business development companies, the Putnam BioRevolution ETF will focus on companies operating at the intersection of technology and biology in the “biology revolution,” and the Putnam Emerging Markets ex-China ETF will focus on emerging markets companies (excluding investments in China and Hong Kong).

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Building on the firm’s launch of its first four active ETFs last year, the new products will leverage existing investment expertise and capabilities within Putnam and are designed to provide the marketplace with access to three distinct strategies within an ETF format.

More specifically, the Putnam BDC Income ETF seeks current income by investing mainly in exchange-traded business development companies based in the U.S. and registered with the SEC. BDCs generally invest in, lend capital to, or provide services to privately held U.S. companies or thinly traded U.S. public companies.

The Putnam BioRevolution ETF seeks long-term capital appreciation by investing mainly in common stocks of companies of any size, utilizing a focus on those that Putnam believes offer the opportunity to capitalize on a convergence of technological developments in the life sciences sector.

Finally, the Putnam Emerging Markets ex-China ETF seeks long-term capital appreciation by investing mainly in common stocks of emerging market companies. Emerging markets include countries in the MSCI Emerging Markets ex China Index, or those Putnam considers to be emerging markets based on an evaluation of their level of economic development or the size and experience of their securities markets. The ETF will exclude companies domiciled in, or whose stocks are listed for trading on an exchange in, China or in Hong Kong.

Carlo Forcione, head of product and strategy at Putnam Investments, says the ETFs are an extension of Putnam’s equity investment capabilities that apply traditional fundamental research, currently employed in an array of products offered by our firm across retail mutual funds, ETFs, separately managed accounts, collective investment trusts, private funds and non-U.S. funds.

PGIM Investments Expands Actively Managed Fixed Income ETF Lineup

PGIM Investments continues to build out its actively managed fixed income ETF lineup with the launch of the PGIM Floating Rate Income ETF.

The new ETF seeks to maximize current income by investing primarily in senior floating rate loans and it is managed by PGIM Fixed Income.

The PGIM Floating Rate Income ETF’s investment strategy mirrors the PGIM Floating Rate Income Fund. Both funds are managed by Brian Juliano, Parag Pandya, Robert Cignarella, Ian Johnston and Robert Meyer.

According to PGIM Investments, floating rate loans may benefit from rising interest rates as the coupon they pay resets based on short-term interest rate movements. The firm says its analysis indicates floating rate loans have historically outperformed the broader U.S. bond market 12 to 18 months after previous Fed rate hike cycles began.

“We’ve seen increased demand for floating rate strategies as investors look to protect against rising rates. In our view, actively managed credit selection will be a differentiating factor between managers in volatile markets, and we are thrilled to offer PGIM Fixed Income’s time-tested strategy as an ETF,” says Stuart Parker, president and CEO of PGIM Investments.

Putnam Investments to Create Suite of Sustainable Retirement Target-Date Funds

Putnam Investments has announced that the firm will reposition its Putnam RetirementReady Funds target-date series as the Putnam Sustainable Retirement Funds.

According to the firm’s announcement of the plan, the Putnam Sustainable Retirement Funds will offer vintages ranging every five years, from 2025 to 2065, along with a maturity fund. The TDF suite will invest in active exchange-traded funds advised by Putnam. The new ESG-focused target-date series is expected to be available in the coming months.

“Putnam Sustainable Retirement Funds will combine our commitment to two of our firm’s key focus areas in the marketplace—sustainable investing and helping individuals prepare for retirement,” says Robert Reynolds, president and CEO, Putnam Investments. “We are excited to offer access to sustainable investment strategies within a target-date format, which continues to be a preferred investment vehicle for millions of working Americans saving for retirement.”

Reynolds says this development will see Putnam continue to operate the separate Putnam Retirement Advantage TDF suite. He says Putnam has been building out its sustainable investing efforts and related investment offerings since 2017. The firm launched two ESG-focused mutual funds a year later and introduced its first sustainable portfolios in an active ETF format in May 2021.

Nationwide Adds New Solution to Address Market Volatility

To address growing concerns about market volatility, Nationwide has added new index options to one of its indexed universal life insurance products, the Nationwide IUL Accumulator II 2020.

The new indices offer consumers more choices for growth potential even in choppy markets, according to the firm. Each index takes a unique approach to limiting the impact of market volatility—one selects investments based on the business cycle while the other focuses on removing the potential for human bias.

Frist, the J.P. Morgan Mercury Index is a global multi-asset index with an equity allocation based on the current stage of the business cycle, along with diversified fixed income and volatility based commodities allocations rebalanced dynamically based on market conditions.

Second, the BNP Paribas Global H-Factor Index is an index that helps keep volatility low and provides more stable and consistent returns through a methodology that identifies and removes overpriced stocks with a high probability of losing value due to human behavior.

The new volatility control indices help limit the impact of market volatility and are available to protect new and existing Nationwide IUL Accumulator II 2020 policyholders.

Benefits May 25, 2022

Webinar: Managing the DC Plan Investment Menu

Longevity risk has received increased attention from the government, the retirement industry and workers, but solutions have yet to be widely implemented.

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Interest in retirement income products among plan sponsors has spiked, but this has not translated to menu options.

Despite studies by myriad recordkeepers and asset managers and the passage of a federal law, few clients have seriously considered adding a retirement income product to their investment lineups, according to fiduciary experts.

“We haven’t seen a lot of clients go down that [retirement income] path yet, but we have seen more inquiries than actual action,” said Kyle Smith, CIO at LeafHouse Financial, during “Managing the DC Plan Investment Menu,” a PLANSPONSOR webinar. “Similar to ESG [environmental, social and governance investing], we’re getting a lot more inquiries than actually people implementing the solutions.”

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Smith said that while plan sponsors may not be ready to include retirement income options, the products should be considered. Among the top concerns about including retirement income are the investments’ liquidity, sufficient participant education and fee transparency.

Mat Powers, director of retirement consulting services at Commonwealth Financial Network, explained that it’s early days for including lifetime income products. He advised that plan sponsors must examine the participant demographics when considering including one.

The age, net worth and financial sophistication of participants, as well as a realistic assessment of whether the product would “just sit on the shelf and not get any attention,” should all be taken into account when considering retirement income products, he said.

Ben Grosz, partner at law firm Ivins, Phillips & Barker, added that while the Setting Every Community Up for Retirement Act has put a spotlight on retirement income investments, few workers have asked for it.

“I don’t think any of the folks I work with on the HR finance side have had participants, employees, retirees asking for it,” he said.

He explained that the issue is often brought up by the plan recordkeeper or adviser with a product to sell, the investment committee or more financially sophisticated employees.

“I’ve only had one committee that started on the journey choose to seriously consider adding a retirement income product,” he said.

Congress addressed longevity risk—defined contribution plan participants outliving their assets in retirement—in 2019’s SECURE Act, Grosz noted. The Lifetime Income For Employees Act, which was reintroduced in March, also signals the government’s interest in allowing plan sponsors to include lifetime income products.

“The government is very much aware [of] and working on addressing and enabling products that can address longevity risk, which is one of the consequences of our defined contribution world, now that such a small minority [in private businesses] have DB [defined benefit] pensions,” Grosz said.  

Plan sponsors considering lifetime income options must approach the products with the same diligence with which all investments are examined. It is the employer’s responsibility to maintain the same quality of inspection under the rigors of the Employee Retirement Income Security Act principles to apply its twin duties of loyalty and prudence to participants, Grosz added.

Plan sponsors considering a product should, therefore, ensure there is “appropriate education to get the committee to a baseline” for broad understanding of the investments, he explained.

“The second item is don’t just consider the product—it’s not a yes [or] no decision on the product that your investment consultant or your recordkeeper is pitching,” Grosz said. “Think about the decision: do you want to add a lifetime income product? And then the second part of that analysis and decision is, which one or ones would we add?”

Limiting Lineups

Plan sponsors managing the investment menu are also grappling with trying not to overwhelm participants with a multitude of funds. In the last five to 10 years, plan sponsors have tended toward reducing the number of fund options, Smith said.   

“We get a lot of proposals for lineups and lineup revisions and that’s one of the common themes: [to] clean up this lineup [and] reduce the confusion, because you get inertia whenever you provide too many options,” he said. “It’s paralysis by analysis [and sometimes] people just don’t do anything at all.”

Plan sponsors have culled fund lineups by removing duplicate investment menu options and placed investments into tiers to categorize funds for participants’ ease of use, added Grosz.

He noted that, for example, clients are grouping investments into a target-date tier, core lineup tier and an esoteric or sustainable tier.

“The main component, for simplification, is to have a QDIA [qualified default investment alternative] that makes sense—if it’s in the target-date suite or managed accounts—something that’s suitable for the participants and simplifies their process so they can sleep at night,” Smith explained.  “That’s really the end goal.”

 

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