Diversified Portfolios

401(k) Consultants Say Active Management Preferred Investment Strategy

Consultants Recommend Adding Non-Core Fixed Income Strategies to Custom Target-Date and Core Lineups

NEWPORT BEACH, CA–(Marketwired – Apr 6, 2016) – Retirement plan consultants say that active management remains the favored investment approach for most major asset classes and target-date retirement strategies, according to the 10th annual PIMCO Defined Contribution Consulting Support and Trends Survey released by PIMCO, a leading global investment management firm.

More than three-quarters of the surveyed 66 consultant firms, which advise on over $4.2 trillion in DC assets, said active management is very important or important for U.S. and global bonds; emerging market and other non-U.S. equity; and U.S. small cap stocks. While just under a quarter of those surveyed said active management is important for U.S. large cap equities.

Consultants continue to recommend that plan sponsors diversify retirement portfolios and complement core bonds through allocations to investment grade credit, high yield, multi-sector and foreign bonds within the core menu and/or custom/white-label strategies.

Meeting participant income goals for retirement is the most important consideration for plan sponsors, according to the survey. Consultants suggest targeting overall income replacement of 80% of final pay, three-quarters of which may need to come from defined contribution plans.

“To achieve that goal, consultants are seeking investment management that will deliver sufficient returns and help manage risk,” said Stacy Schaus, executive vice president and author of the survey. “This includes adding diversifying bonds and tapping into active management.”

Other key findings:

  • The vast majority of consulting firms surveyed continue to recommend target-date funds for a retirement plan’s qualified investment default alternative (QDIA). In addition, they rank “maximizing asset returns while minimizing volatility relative to the retirement liability” as the most important objective in glide path design.
  • Consultant firms report total AUM under advisement within custom target-date, custom target-risk and custom multi-manager/white label of $195 billion, $39 billion and $333 billion, respectively, and expected growth of 8% to 10% over the next three years.
    Meeting participant income goals for retirement is the most important consideration for plan sponsors
  • Plan sponsors can help manage fiduciary risk by benchmarking plan costs, hiring an investment consultant, documenting investment reviews, conducting fiduciary training and moving away from revenue sharing. Notably, including index funds is not an action suggested by the vast majority.
  • Nearly two-thirds of consultants (63%) say they are likely to recommend a capital preservation alternative to clients invested in a non-government money market fund. The majority (65%) recommend a switch to stable value, while 44% suggest a government money market and half are at least somewhat likely to recommend an ultra-short fixed income option or one tailored for DC.
  • About two-thirds of respondents also recommend adding TIPS and/or a multi-real asset strategy to the core line-up. The vast majority recommend commodities (84%) and REITs (82%) be added to blended strategies in addition to a multi-real asset strategy and TIPS.



About the Survey
PIMCO’s DC Practice prepares the 2016 Defined Contribution Consulting Support and Trends Survey to help plan sponsors understand the breadth of views and specific consulting services available within the DC marketplace. Our 2016 survey captures data, trends and opinions from 66 consulting firms across the U.S., which serve over 11,000 clients with aggregate DC assets in excess of $4.2 trillion. For survey highlights or other PIMCO DC publications, please contact us at 888.845.5012, email us at pimcodcpractice@pimco.com or visit our web page at https://www.pimco.com/channel-content/defined-contribution.
PIMCO is a leading global investment management firm, with offices in 12 countries throughout North America, Europe and Asia. Founded in 1971, PIMCO offers a wide range of innovative solutions to help millions of investors worldwide meet their needs. Our goal is to provide attractive returns while maintaining a strong culture of risk management and long-term discipline. PIMCO is owned by Allianz S.E., a leading global diversified financial services provider.
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