Insights

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

Investment Strategist

Potential Benefits:

  • 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?

For more information our glidepath strategy and enhancement approach, contact DCInvestmentStrategy@ssga.com.