Perhaps the greatest problem investors face is being able to balance equity allocations. Target date funds offer an excellent investment vehicle for retirement, but the problem is that they don’t protect the assets of those close to retirement.
Analysts at Old Mutual Asset Management have published a white paper on how low-volatility equity strategies can offer protection for investors who are in or near retirement.
For the first quarter of 2022, the Voss Value Fund returned -5.5% net of fees and expenses compared to a -7.5% total return for the Russell 2000 and a -4.6% total return for the S&P 500. According to a copy of the firm’s first-quarter letter to investors, a copy of which ValueWalk has been able Read More
Target date portfolios were originally meant to help “unsophisticated investors” handle risk factors that are associated with saving for retirement. They enable investors to easily set parameters within their portfolio according to their own fears about the market. But what if an investor chooses the wrong factor to fear the most?
Old Mutual Asset Management analysts say the answer is low-volatility strategies, which offer both downside protection and upside participation. They say that by following a low-volatility strategy, investors can “grow assets in a more predictable manner.”
The analysts use an example portfolio to demonstrate how, within the last decade, deciding to reallocate the portfolio’s global equity portion to a low-volatility strategy, protects and enhances the level of return; the example portfolio generated “a 27.5 percent decrease in standard deviation.” They say that using this type of strategy is especially helpful for those who carry a high equity concentration as a way of managing shortfall risk.
A low-volatility strategy makes it possible for investors to continue having a high equity allocation in order to improve their chances of meeting their savings goals while also reducing the risk of investing. Because low-volatility strategies carry less risk, they are also great solutions for investors who “want to add exposure to potentially higher-alpha asset classes that can boost return.”
“A plan sponsor should no longer need to choose between solving for only the greater of two evils—market risk and asset depletion,” the analysts conclude. “Low-volatility strategies permit plan sponsors to better solve for both.”
Old Mutual Asset Management White paper on retirement by