Target Retirement Annual Review Optimizing Our Approach to Fixed Income in a Low-Yield Environment
As previously communicated, effective April 1, 2021, the State Street Target Retirement glidepath will add an exposure to intermediate US government bonds (referred to here as intermediate government bonds) in the accumulation phase, funded from the existing long government bond allocation. The overall allocation to US government bonds will not change as a result of this enhancement, but the allocation will now be a mix of long government bonds and intermediate government bonds. This change will apply to both our collective investment trust and mutual fund vehicles.i
The enhancements modestly improve long-term expected returns while maintaining a consistent level of forecasted volatility in the earlier stages of the glidepath.
Retaining long government bonds within our investment opportunity set allows the strategy to maintain a longer fixed income duration, providing higher expected downside protection.
The overall glidepath allocation to fixed income and US government bonds remains unchanged.
The strategic mix will consist of 70% long government bonds and 30% intermediate government bonds, modestly improving expected return while retaining key diversification benefits. In selecting these allocations, we sought to maximize efficiency while also considering tail-risk scenarios in which long government bonds have historically added significant value. The strategic mix is expected to be evaluated as part of our annual review process in future years.
Figure 1: Efficient Downside Protection Across Market Cycles
Figure 2: Strategic Asset Allocation as of April 1, 2021
Data rounded; not all columns will sum to 100%.
Annual Review Methodology
Each year, State Street Global Advisors conducts a comprehensive review of its target retirement strategies. The annual review process is driven by the Defined Contribution Investment Group (DCIG), which blends asset allocation expertise from State Street’s Investment Solutions Group with defined contribution (DC) market insights from the Global Defined Contribution team. The review follows a consistent and transparent framework to reassess the capital market expectations and demographic assumptions that underpin the glidepath, while also evaluating new asset classes and investment themes for inclusion in the investor portfolios. The process is grounded in three key criteria:
Desirability: Would enacting this change to the glidepath be expected to improve participant outcomes?
Suitability:ii Is the investment decision under consideration suitable for all DC investors?
Investability: Can we implement this investment theme efficiently?
iExposure in the Collective Investment Trust will be achieved via the Bloomberg Barclays US Intermediate Government Bond Index, whereas the Mutual Fund will use the Bloomberg Barclays US 3-10 Year Treasury Index. iiWhen analyzing whether any investment is suitable for an individual, the individual’s investment profile must be considered.
Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions
SSGA Target Date Fund are designed for investors expecting to retire around the year indicated in each fund’s name. When choosing a Fund, investors should consider whether they anticipate retiring significantly earlier or later than age 65 even if such investors retire on or near a fund’s approximate target date. There may be other considerations relevant to fund selection and investors should select the fund that best meets their individual circumstances and investment goals. The funds' asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. The investment risks of each Fund change over time as its asset allocation changes.
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The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information.
The views expressed are the views of the Defined Contribution team through April 1, 2021, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Investing involves risk including the risk of loss of principal.
All of the index performance results referred to are provided exclusively for comparison purposes only. It should not be assumed that they represent the performance of any particular investment.
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Assumptions and forecasts used by State Street Global Advisors (SSGA) in developing the Portfolio’s asset allocation glide path may not be in line with future capital market returns and participant savings activities, which could result in losses near, at or after the target date year or could result in the Portfolio not providing adequate income at and through retirement.
Diversification does not ensure a profit or guarantee against loss.
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This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
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