PLANADVISER - May/June 2020 - 10

trends
Protection
During
Downturns
Managed accounts,
age-appropriate
TDFs can each be
attractive
RETIREMENT plan advisers and investment managers agree
that in periods of market volatility, managed accounts
have served investors better than have target-date funds
(TDFs) and target-risk funds, due to their ability to navigate
changing markets.
" As managed accounts are actively managed, they can
be more tactical and focus on specific areas of the market, "
says Ken Van Leeuwen, managing director of Van Leeuwen
& Co. " For example, if you look at two areas doing well
right now, technology and cloud computing, investment
managers can home in further in those areas and get more
granular. TDFs are stuck in their glide path strategies and
cannot be tactical. "
Darnel Bentz, senior vice president and senior wealth
adviser with Kayne Anderson Rudnick Wealth Management,
agrees that " managed accounts are better-that is, assuming
they are selective and actively traded with 30 to 50 names
and not 'closet index funds' with hundreds of stocks. "
But, Bentz explains, managed accounts that invest broadly
and mirror index funds-i.e., closed index funds-will likely
not produce excess returns to justify their higher cost.
Kurt Wedewer, regional president at American Trust
Retirement, says one problem with target-date funds is that
the set glide path can lead to selling low and buying high-
or becoming conservative at the worst possible time.
But Liana Magner, partner in the U.S. defined contribution
(DC) practice of Mercer, says, since the Great Recession,
starting in 2008, near-retirement TDF vintages have scaled
back their equity exposure. In 2008, they suffered a 14%
decline, whereas in the first quarter of this year, they went
down by 10.4%.
Doug McIntosh, vice president of investments at Prudential
Retirement, says plan participants generally have been
performing better in this crisis than they did in the Great
Recession-largely because of the increased use of TDFs as
the qualified default investment alternative (QDIA). In 2008,
60% of plans used TDFs as the QDIA. Now, 97% do. In addition,
" Today, TDFs have generally taken down risk for those
closest to retirement, " McIntosh says.
" The glide paths have gotten more conservative, " he notes.
" As well, there are a broader set of asset classes utilized, such
as TIPS [Treasury inflation-protected securities] and private
real estate, to minimize equity volatility and inflation. "
Still, knowing their managed account is being actively
managed also assuages investors' fears during periods of
volatility, helping them remain invested, Wedewer says. -PA
In Times of Financial Uncertainty ...
What would help people feel smarter about making financial decisions for the future?
Understanding
34%
Having a financial plan
in place to help me save
and invest toward short-,
mid- and long-term goals
Source: Fidelity Investments Market Sentiment Study
31%
how to better prioritize
my savings
28%
Free workshops and other
online educational content
available on demand
26%
Access to a financial
professional to call with
questions
25%
Checklists and actionable
resources to help guide me
through different life events
and market situations
10 | planadviser.com May-June 2020
Art by Harry Campbell
http://www.planadviser.com
PLANADVISER - May/June 2020

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