Macro Diversification and Target-Date Funds


SEPTEMBER 2015


Target-date funds have become the default investment for many defined-contribution retirement plan participants—but an allocation to macro diversification approaches may be advantageous for managing the risks faced by those participants. We explain why in our latest white paper, “Macro Diversification: Capitalizing on a Clear and Present Opportunity in Target-Date Funds."


Highlights include:
  • Typically, target-date funds have not included a strategy that can capitalize on opportunities across markets and currencies on an active, top-down basis. William Blair’s Dynamic Allocation Strategies team believes macro diversification is underutilized and there is a strong investment case for adding it to today’s target-date funds.
  • Across the landscape of target-date funds, the largest pools of assets are invested in traditional long-only asset classes, increasingly using low-cost, passive investment options.
  • Optimal cost structures, particularly in the design of multi-asset class solutions such as target-date funds, would allow for better risk-adjusted returns, and could help mitigate key risks, such as market risk, at vital points of the life cycle like the years nearing (and early into) retirement.
  • Macro diversification strategies provide enhanced diversification and lower correlation when combined with other traditional long-only investment allocations.

 

Read the white paper (PDF)


DISCLOSURE
Information is not intended as investment advice. Any discussion of particular topics is not meant to be comprehensive, may not be suitable for every investor, and is subject to change. Data shown does not represent performance or characteristics of any William Blair product or strategy. Past performance is not indicative of future results. Information and opinions expressed are those of the authors and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the investment management division of William Blair & Company, L.L.C.