Myth #4: Active Managers Protect Better in Equity Market Sell-Offs
At State Street, we believe that being prepared can be as effective as active management. Investing our younger participants in longer-dated government bonds is one example of this forward-looking perspective. This dimension of our diversification strategy anticipates sharp equity market sell-off events, as seen in the first quarter of 2020, during which participants with significant equity exposure require inversely correlated asset classes to offset loss. The opposite approach is required for more mature savers, who need to reduce interest rate risk. That’s why we dial back long bond duration as participants roll down the glidepath. Managing fixed income risk proactively allows State Street to deliver diversification and de-risking to the right participants at the right time. Not only does this approach allow us to be as nimble as active managers, but it stands apart when compared to other index managers that apply a static strategy to fixed income, as illustrated in Figure 3.
Figure 3: Proactive Approach to Fixed Income Risk Management
Myth 5: “To” Managers’ Emphasis on Asset Protection Leads to Better Performance
In the wake of a volatile market cycle, an investment approach that emphasizes asset protection may seem particularly attractive, but in the long run, it is an incomplete strategy for retirement success. Accumulation is still essential.
In fact, by comparing the performance of State Street’s 2020 Fund (where a 65-year-old participant would currently be invested) to the 2020 funds of three large “to retirement” managers (representing both index and active approaches), we found that a State Street investor starting at the same dollar amount in 2010 would have accumulated meaningfully higher levels of wealth than investors with the other managers, even after accounting for slightly larger drawdowns at age 65.
Figure 4: Ten Years of Wealth Accumulation in 2025 Target Date Fund Vintage
Myth #6: Alpha from Active Increases Performance
Building on our accumulation emphasis, the State Street Target Retirement Series’ glidepath construction and lower investment fees have translated into superior performance, despite the fact that index-based target date funds don’t gain potential alpha from underlying funds. Figure 5 illustrates this returns trend since the inception of our funds in January 2005.
Figure 5: Above Average Performance Returns Since Inception Highlight State Street’s Superior Performance as of June 30, 2021
Myth #7: Fees Don’t Matter in the “Active” vs. “Passive” Debate
Considering fees and investment expenses are both a plan fiduciary’s responsibility and a critical dimension for evaluating actively managed and index-based TDFs — and there is no reason to pay more. In fact, while outperforming the competition, the State Street Target Retirement Series costs less (at 12 bps) than 97% of target date suites in the market.2 Advisors who are able to provide their plan participants with an institutional quality glidepath, exposure to a broad set of asset classes and lower fees may be able to convert and deepen their relationships.
The State Street Difference
We deliver target date funds through various investment vehicles, including collective investment trusts (CITs), custom separate accounts and mutual funds. Since our CIT series inception in 2005, the average State Street target date fund has outperformed 90% of our peers, while also experiencing lower volatility than 76% of the same peer group, due in large part to our broadly diversified set of underlying asset classes.3 Our indexing approach keeps fees low, while securities lending options aims to offer opportunities to boost returns.
With a demonstrated track record, we focus on four areas of differentiation:
For more information on pricing, strategies and performance, contact DCIntermediaryTeam@ssga.com.
1 Competitor glidepath info sourced from fact sheets and/or prospectus. Fixed Income asset class statistics sourced from Factset, as of June 30, 2021. Because. Yield to worst calculation is a weighted average of the yield of each underlying index per Factset, as of June 30, 2021. Past performance is not a guarantee of future results. Allocations are as of roll down schedule date indicated, are subject to change, and should not be relied upon as current thereafter.
2 Morningstar Direct, as of June 30, 2021
3 Morningstar Direct, as of June 30, 2021
4Characteristics pulled from provider’s fact sheets and websites. As of June 30, 2021. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter.
Important Risk Disclosures
Investing involves risk including the risk of loss of principal.
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.
Diversification does not ensure a profit or guarantee against loss.
The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.
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.
Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.
Assumptions and forecasts used by 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.
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State Street Global Advisors and its affiliates have not taken into consideration the circumstances of any particular investor in producing this material and are not making an investment recommendation or acting in fiduciary capacity in connection with the provision of the information contained herein.
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Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.
Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.
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Exp: August 31, 2022