DC investment trends Ian Sykes – Willis T owers Watson Insert your logo here IAPF Annual DC Conference 2016
Trends Active managed Diversified growth funds funds Annuity target Flexible lifestyles Asset based Outcome based Insert your logo here IAPF Annual DC Conference 2016
What is a diversified growth fund (DGF)? Equity returns with less risk ‘One stop shop’ pooled fund Broad diversification and/or active management ‘Cash plus’ objectives Insert your logo here IAPF Annual DC Conference 2016
Do they deliver? Yes but… Overpriced Low skill Challenging times ahead Insert your logo here IAPF Annual DC Conference 2016
Yes 50% 25% 0% -25% -50% Dec-2007 Jun-2008 Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Average DGF (Gross) MSCI World (GBP Hedged) UK CPI Significant reduction in downside risk Insert your logo here IAPF Annual DC Conference 2016
But… 100% 75% 50% 25% 0% -25% Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Average DGF (Gross) MSCI World (GBP Hedged) UK CPI Underperform in rising markets Insert your logo here IAPF Annual DC Conference 2016
Overpriced? 50% 40% 30% 20% 10% 0% -10% -20% Dec-2007 Jun-2008 Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Average DGF (Gross) 60:40 Cheap passive strategy produces similar returns Insert your logo here IAPF Annual DC Conference 2016
Low skill DGF Return 100% Return from 100% 60:40 allocation Additional return 5% from SAA Additional return -3% from TAA Additional return from -2% idiosyncratic trades -20% 0% 20% 40% 60% 80% 100% 120% Active management doesn’t add value Insert your logo here IAPF Annual DC Conference 2016
Challenging times Upside (10%) • Strong production- Inflation/ led growth Debt overhang bond yields • Good equity returns (50%) • Bond yields rise farther than discounted • Moderate growth Downside • Low returns due to low rates and (40%) low/average risk premia • Policy rates and bond yields rise • Weak growth very slowly Bubble size • Significant equity indicates likelihood drawdowns • Deflation risks • Low rates Growth/ equity returns Insert your logo here IAPF Annual DC Conference 2016
Improvements Go passive – cheaper but more equity risk More return sources via ‘smart beta’ (yuck…) Multi-manager – higher governance Insert your logo here IAPF Annual DC Conference 2016
Changing lifestyles Fixed retirement age and annuity purchase Traditional cash/bond lifestyle Insert your logo here IAPF Annual DC Conference 2016
Flexibility Fuzzy retirement and ARF option Smart None Multiple (e.g. Cash/Pension /ARF) Insert your logo here IAPF Annual DC Conference 2016
Jam Insert your logo here IAPF Annual DC Conference 2016
Thank you Insert your logo here IAPF Annual DC Conference 2016
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