Defined contribution

Highly differentiated Multi-Asset DC solutions

Effective building blocks in a modern default investment strategy

4 Sept 2023

8 minutes

The fast view

The primary aim of a default defined contribution (DC) investment strategy is to ensure members achieve optimal financial outcomes during retirement and beyond. Developing an effective investment strategy involves addressing the challenge of smoothly transitioning members from the accumulation stage to their suitable retirement portfolio and into the decumulation phase. Various interpretations exist on how to achieve this goal.

The challenge for DC members today lies in striking a balance between capturing long-term investment returns and preserving capital in an environment of potentially higher inflation and interest rates. As we enter a new investment regime, it is evident that the coming decade will significantly differ from the previous one. Successfully navigating these changes will require thoughtful adaptation and a proactive approach to investment strategies.

In this paper we discuss the merits of two differentiated multi-asset approaches which seek to enhance the savings journey for members:

  1. Global Macro
    Strategies such as our Global Macro Allocation strategy (GMA) aim to provide members with high total returns compared to equity-only or passive 60/40 approaches. By using a longer-term thematic macro framework, we identify investment opportunities and allocate capital countercyclically1. This approach aims to offer members a more reliable retirement journey without forfeiting returns.
  2. Multi-Asset Income
    Strategies such as our Diversified Income strategy (DIF) can be an attractive alternative to traditional short duration fixed income or cash as members approach retirement2. At this time, it’s desirable to seek defensive and predictable total returns to safeguard investors against capital erosion caused by market volatility (sequencing risk), or in real terms (inflation risk). Income strategies can also present a flexible ‘to and through’ solution for default providers pursuing decumulation strategies

Given the above strategies have highly differentiated outcomes, their combination can be powerful. In this paper we demonstrate how this combination can potentially outperform passive alternatives, whether applied individually or in combination at various stages of the retirement journey.

Read the paper

1 A counter cyclical approach typically leads us to be in early into investment positions, and early out. This strategy will typically have its periods of weakest relative performance when we are either de-risking or re-risking into certain asset classes or regions.

2 Cash deposits and developed government bonds, have in the past, been generally considered more secure investments than some of the other asset classes held in the portfolio.

General risks. All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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