With regulators and lawmakers continuing to scrutinize the blowup of target date funds in 2008, AllianceBernstein LP is adding a component to its lineup of target date funds aimed at managing market volatility better.
With regulators and lawmakers continuing to scrutinize the blowup of target date funds in 2008, AllianceBernstein LP is adding a component to its lineup of target date funds aimed at managing market volatility better.
Starting in April, AllianceBernstein will allocate up to 20% of funds in its target date portfolios to a volatility management component, which will invest in a mix of equities and real estate investment trusts in normal markets, but will be able to shift into bonds and cash when it’s appropriate to reduce overall portfolio risk, said Thomas J. Fontaine, head of defined contribution.
“This hopefully addresses many of the concerns [about target date funds] that came out of 2008,” said Mr. Fontaine, in an interview.
In 2008, many 2010 target date funds were found to be overweighted in equities, and so suffered extreme investment losses — some as high as 41%. As a result, regulators and members of Congress last year began investigating whether target date funds needed increased regulation.
The Labor Department plans to issue guidance around how plan sponsors should use these portfolios in the next several weeks, while Sen. Herb Kohl, D-Wis., plans in the next few weeks to propose legislation mandating that target date fund managers take on fiduciary responsibility under the Employee Retirement Income Security Act of 1974.
AllianceBernstein’s new tool is designed to allow portfolio managers of its target date funds and institutional clients that use its customized portfolios to mitigate risk. It will also be transparent to investors, Mr. Fontaine said.
“Investors can know exactly at all points along the glide path how this component is performing,” Mr. Fontaine said.
The new component will not affect the pricing of the portfolios, he said.
