Close Close

Retirement Planning > Retirement Investing

Adding Volatility Management to Target-Date Funds to Lower Risk

Your article was successfully shared with the contacts you provided.

In early April, AllianceBernstein will add a new volatility management component to its Retirement Strategies target-date mutual funds to lower market risk during volatile times.

According to a statement from Seth J. Masters, chief investment officer of blend strategies and defined contribution at AllianceBernstein, “This important enhancement is the result of a multi-year firm wide research effort, which created new tools we believe can be applied to ‘smooth the ride’ and improve retirement outcomes for defined contribution plan participants. The project demonstrates our ongoing work to deliver our best thinking on target-date design to plan sponsors and investors.”

AllianceBernstein’s volatility management approach seeks to balance risk and return, placing primary emphasis on controlling risk. This differs from traditional tactical asset allocation which focuses primarily on predicting asset-class returns and attempting to time the market to take advantage of short-term opportunities to enhance returns.

“Target-date funds naturally reduce the volatility in a portfolio by reducing the exposure to equities over time as an investor approaches and moves through retirement. With volatility management, we can now more explicitly manage risk in target-date portfolios,” said Thomas J. Fontaine, head of defined contribution at AllianceBernstein in a statement.

“We believe our new risk management tools will allow us to adjust portfolios during extreme market cycles such as the recent credit crunch, moderating short-term negative performance — but importantly, without sacrificing long-term return potential,” Fontaine explained.

AllianceBernstein will allocate up to 20 percent of the existing Retirement Strategies target-date funds into the new volatility management component, with the allocation varying by vintage. The volatility management component will invest in a mix of equities and REITs in normal markets but will have the ability to dynamically de-risk into bonds and cash when it’s appropriate to reduce overall portfolio risk.

It will replace a portion of the equities and REITs, so the long-term strategic allocation does not change following the introduction of this component into the Retirement Strategies funds.

An institutional implementation of volatility management will be available in the second quarter of 2010 for use in customized target-date portfolios, including AllianceBernstein’s Customized Retirement Strategies service for large-market defined contribution plans.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.