Products December 22, 2016

Investment Products and Services

Prudential launches new TDF suite; Natixis releases ESG TDFs; and Vanguard reports reduced expense ratios.
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Prudential Launches New TDF Suite 

Prudential Investments has released its new Day One Mutual Funds, a series of 12 target-date funds (TDFs), which will be available through retirement plans and financial intermediaries.  

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“Choosing the right target-date fund may be one of a fiduciary’s most important decisions,” says Stuart Parker, president of Prudential Investments. “The Day One Mutual Funds are a solution to consider with a glide path constructed to mitigate risk at each stage of retirement with a competitive expense ratio.”

Prudential says the series is designed to mitigate risk for younger participants by accumulating higher equity exposure before preserving lower equity exposure for older investors to hedge against the risk of significant market losses.

“Studies show that Millennials early on tend to be underweight in equities despite having time on their side,” says Tony Fiore, senior vice president and national sales manager of retirement investment solutions at Prudential Investments. “So we have a higher equity exposure than most in the industry because we feel that accumulation is really the most important thing you can do early on … You eventually get to what we call the retirement red zone about 10 years before retirement. That’s when we try to take risk off the table as much as we can.”

The series also focuses on inflation protection to address the risk of eroding purchasing power for more than 30 years in retirement. Its hybrid investment approach combines active and passively managed strategies to reduce costs and generate potential for alpha, Prudential explains.

The Day One Mutual Funds are being offered at an expense ratio of 0.40%.

“Target funds have become the vehicle of choice within defined contribution plans, but not all target-date funds are created equal,” says Jamie Kalamarides, head of Full Service Solutions at Prudential Retirement. “Our approach to the Day One Target Date Funds incorporates nearly a century of experience in fulfilling pension obligations and helping plan participants reach their desired retirement outcome.”

The new Day One suite features 12 target-date mutual funds and is available in five-year increments, ranging from 2010 to 2060, in addition to an income fund. Additional information about Day One Mutual Funds can be found at DayOneFunds.com.

NEXT: Natixis Releases ESG TDFs

Natixis Releases ESG TDFs

Natixis Global Asset Management has filed a registration statement with the Securities and Exchange Commission (SEC) to register what it says is the first series of target-date mutual funds (TDFs) in the U.S. with investments focusing on environmental, social, and governance (ESG) responsibility. The Natixis Sustainable Future Funds will include ten investment vehicles with vintages ranging every five years from 2015 to 2060. They are expected to launch in the first quarter of 2017.

These funds will select securities based on ESG criteria with respect to such issues as fair labor, anti-corruption, human rights, fair business practices and mitigation of environmental impact, the firm announced. These TDFs will seek a diversified portfolio of investments that contribute to a more sustainable future.

Most respondents to the firm’s 2016 Global Survey of Individual Investors stressed the importance of investing in companies that are ethically run (83%), and have a positive social impact (70%) and good environmental records (70%). Some research also suggests that ESG is especially important among Millennials. The Natixis 2016 Retirement Plan Participant Study backed this notion as it found that 71% of Millennials say they would be more willing to contribute to their retirement plan if they knew their investments were doing social good.  

“Our research shows that most people want to invest in companies that are ethically run, have a positive social impact, and have strong environmental track records,” says John Hailer, CEO for the Americas & Asia and head of Global Distribution. “We are excited to bring to market the first target-date mutual funds with a sustainable investing approach that enables individuals to align their investments with those beliefs.”

The proposed funds will be advised by NGAM Advisors, L.P. and sub-advised by Natixis Asset Management U.S., and will incorporate equity and fixed income allocations that leverage the ESG expertise of Mirova, an affiliate of Natixis AM U.S., which has managed responsible investment solutions for almost 30 years. Natixis also has selected Wilshire Associates Incorporated as a sub-adviser to provide glide path design and portfolio allocation services.

The funds' prospectuses are not complete and may be changed. A registration statement relating to these target-date funds has been filed with the SEC, but has not yet become effective. The preliminary version of the Natixis Sustainable Future Funds' registration statement has been filed with the SEC and can be obtained by visiting www.sec.gov.

NEXT: Vanguard Reports Reduced Expense Ratios

Vanguard Reports Reduced Expense Ratios

Vanguard clients saved a total of $13 million as a result of lowered expense ratios for 35 individual mutual fund shares, including 11 exchange-traded fund (ETFs) shares, the company announced.

These mark the first wave of Vanguard funds with a fiscal-year-end date in 2016 to report expense ratio changes (in this instance, funds with a fiscal year that ends in August). Vanguard will announce any additional expense ratio changes as funds update their prospectuses in the coming months. Expense ratios are reported on an annual basis and are based on actual operating expenses for the prior fiscal year.

“While some will portray Vanguard’s expense ratio reductions as another volley fired in the fee war, we view it as business as usual,” says Vanguard CEO Bill McNabb. “We’ve been lowering the cost of investing for four decades and will continue to do so. Importantly, we have announced reductions across our product offerings—mutual fund and ETF, index and active, stock and bond, domestic and international.”

Twenty-four Vanguard bond index fund shares reported lower expense ratios. For example, the $18.7 billion Vanguard Short-Term Corporate Bond Index Fund reported the following reductions: Admiral Shares, 3 basis points to 0.07%; ETF Shares, 3 basis points to 0.07%; and Institutional Shares, 2 basis points to 0.05%.

A full list of reported expense ratio changes can be found here.

Administration December 22, 2016

CalPERS to Lower Discount Rate Over Three Years

The goal is a 7% discount rate.
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The California Public Employees’ Retirement System (CalPERS) Board of Administration voted to lower the discount rate from 7.5% to 7% over the next three years. This incremental lowering of the discount rate will give employers more time to prepare for the changes in contribution costs.

The discount rate changes approved by the Board for the next three Fiscal Years (FY) are as follows:

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  •     FY 2017-2018:     7.375%
  •     FY 2018-2019:     7.25%
  •     FY 2019-2020:     7%

In addition, the Board approved separate timelines for implementing the new rate for state, school, and public agencies. The new discount rate for the state would go into effect July 1, 2017. The new discount rate for the school districts and public agencies would take effect July 1, 2018. The difference allows schools and public agencies additional time to plan for rate increases.

Lowering the discount rate, also known as the assumed rate of return, means employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under the Public Employees’ Pension Reform Act will also see their contribution rates rise. Normal cost is the cost of pension benefits for one year.

The three-year reduction of the discount rate will result in average employer rate increases of about 1% to 3% of normal cost as a percent of payroll for most miscellaneous retirement plans, and a 2% to 5% increase for most safety plans.

Additionally, many CalPERS employers will see a 30% to 40% increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring the fund to a fully funded status over the long-term.

“This was a very difficult decision to make, but it is an important step to ensure the long-term sustainability of the fund,” says Rob Feckner, president of the CalPERS Board of Administration. “We know this will have an impact on the state, schools, and public agencies that partner with us, and we’re committed to making sure the changes are implemented in a phased approach so our employers and affected members have time to plan their budgets responsibly.”

Beginning in 2017, the Board will start reviewing the fund’s asset allocation mix during the next Asset Liability Management process. The process, which includes a review of the discount rate, will conclude in February 2018.

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