PLANADVISER - March/April 2018 - 21

TDFs That Tactically Allocate Assets
... but limit the amount that can be adjusted
THE wisdom of setting a predetermined
glide path for the asset-allocation
trajectory of a target-date fund (TDF)
spanning maybe 30 or 40 years could
be questioned when there are disruptions
in the market. This is why some
TDF providers are dedicating modest
amounts of their portfolios to tactical
asset allocation.
SEI
Institutional had long been
applying this investment technique to
its defined benefit (DB) plans, says Jake
Tshudy, director of defined contribution
(DC) investment strategies at SEI.
This prompted the firm five years ago
to create the Dynamic Asset Allocation
Fund as one of the underlying funds in
its TDF series, Tshudy says.
The TDFs allocate up to 10% of their
assets to the Dynamic Asset Allocation
Fund, but, like equity exposures,
this allocation declines as participants
approach retirement, he says. To
reduce trading fees, the fund uses an
options overlay.
" Glaring economic disjoints " guide
the fund's investments, Tshudy says.
For example, the fund has recently
gone short on the euro and long on the
U.S. dollar. " At the same time, if we
decide there is a longer-term opportunity
with high yield and emergingmarket
debt, we might make those
trades in the fund if we think we are
going to hold those positions for a long
time, " he adds.
Nonetheless, SEI believes its TDFs'
important
glide path is
" the most
component " driving their investments.
In addition to the inclusion of
the Dynamic Asset Allocation Fund,
the TDFs " do have some funds that are
actively managed " but the allocation is
managed " from a top-down perspective, "
Tshudy says.
Likewise, the TIAA-CREF Lifecycle
Fund series includes a tactical
asset-allocation program that TIAA
has modestly added over the past two
years, says John Cunniff, managing
director at TIAA and manager of the
73%
70%
60%
25%
Automatically
enroll
participants
Source: Willis Towers Watson
Offer a
Roth 401(k)
Automatically
escalate
deferrals
Increased
contributions in
past five years
funds. " We won't deviate more than
plus-5 or minus-5 " to the program, he
says. " This will never be more than
10% of the relative tracking error. We
never want the tactical allocation to
overwhelm the funds and, therefore,
do not have wide limits. "
TALKING POINTS
401(k) Strides
The percentage of sponsors that have made improvements
to their retirement plan:
60%
35%
Automatically
enroll participants
Source: Plan Sponsor Council of America
Use a 6%
deferral rate
40%
Use a >6%
deferral rate
Ten years ago, only a handful
of investment managers included
tactical allocation in their TDFs,
Cunniff says. Today, half of the TDFs
on the market include this investment
strategy, and plan sponsor reception
has been positive, he says. -Lee Barney
Another Take on How Sponsors
Are Improving Their DC Plans
planadviser.com march-april 2018 | 21
http://www.planadviser.com
PLANADVISER - March/April 2018

Table of Contents for the Digital Edition of PLANADVISER - March/April 2018
