The Legg Mason Total Advantage Target Date Funds seek to reduce market volatility for retirement savers when they’re most vulnerable: just before and right after retirement
SPRINGFIELD, Mass., May 30, 2018 – Massachusetts Mutual Life Insurance Co. (MassMutual) is introducing a new target date fund family subadvised by a Legg Mason-affiliated manager, QS Investors, LLC, that aims to help reduce market volatility for retirement plan savers when they are most vulnerable to market losses: just before and right after retirement.
The Legg Mason Total Advantage Funds, a series of bank-maintained collective investment funds sponsored by Wilmington Trust, N.A. and available through MassMutual 401(k)s and other defined contribution retirement plans, offers retirement savers a combination of upside return potential with the goal of reduced volatility. The Funds incorporate both active and passive investment management strategies by investing in underlying funds that are managed by 16 different managers. A stable value investment component is a key part of the strategy to help retirement savers manage market volatility.
The Legg Mason Total Advantage Funds’ architecture gives investors access to not only Legg Mason managers but also to a wide array of external managers. QS Investors is one of Legg Mason’s institutional asset manager affiliates, with an expertise in multi-asset class portfolios.
“The five years before and after retirement can be a particularly vulnerable time for retirement savers,” said Tina Wilson, Head of MassMutual Investment Solutions Innovation. “With a relatively short time horizon to recoup investment losses, pre-retirees and retirees risk significantly diminished assets and retirement income from market corrections and volatility. Unfortunately, some retirees may be taking more risk than they realize.”
Nine in 10 retirees (94 percent) and pre-retirees (92 percent) “strongly agree” or “somewhat agree” that it is important to take steps to avoid major stock market losses right before retirement, according to the MassMutual Retirement Savings Risk Study1. One in two pre-retirees (49 percent) and one in three retirees (32 percent) are apprehensive about taking too much investment risk, the study finds.
Yet, 59 percent of pre-retirees and 32 percent of retirees describe their primary investment strategy as focused on either “aggressive growth” or “moderate growth,” according to the study, which indicate that the level of risk in their investment portfolio may be too high for their age and goals. Although more retirees focus on preserving their assets in retirement, MassMutual’s study shows, 32 percent continue to invest primarily for growth five years into retirement and 23 percent maintain that strategy 10 years into retirement.
Financial advisors often caution retirees and pre-retirees against taking too much investment risk, to guard against steep paper losses at a time in which they will need to generate retirement income. Study respondents who work with a financial advisor (46 percent of pre-retirees; 57 percent of retirees) say their advisor recommends they change their investment strategy. Of that group, 73 percent of pre-retirees and 88 percent of retirees report that their advisor recommended that they invest more conservatively. Target date funds are evolving toward more dynamic structures that have the potential to better balance risk and reward for individuals, depending on macros market factors, their age and retirement plans.
The Legg Mason Total Advantage Funds seek to manage investment risk with a series of proprietary investment strategies, including Adaptive Asset Allocation and Next-Generation Diversification.
- Adaptive Asset Allocation leverages a Retirement Keeper tool and Tactical Accelerator, both designed to deliver additional value through asset allocation and adapting to evolving market conditions. The Retirement Keeper tool seeks to minimize exposure to large market losses in the five years before and after the target retirement date. The Tactical Accelerator is designed to boost return potential through opportunistic asset allocation, in response to market indicators.
- Next-Generation Diversification combines both active and low-cost passive investment styles, employs a multi-manager approach to diversification across multiple asset classes, and includes a stable value fund to help reduce market volatility and generate more stable returns.
The Legg Mason Total Advantage Funds employ a glide path, which allows for a gradual adjustment of the asset allocation to reduce exposure to equities as savers approach retirement, shifting from an equity weight as high as 97 percent for those with 30 or more years until retirement to as low as 34 percent for those who are retired. Weightings for stable value and other fixed investments increase proportionately. The actual ratio of the weighting between equities and fixed income is calibrated according to the target retirement year.
“We have found that investors nearing retirement are woefully under-saved for this stage in their lives. Just as MassMutual determined in their survey, right before and after retirement, plan savers are most vulnerable to market losses. So, they are entering this phase with less money than anticipated, and the risk for loss is real,” said Adam Petryk, Head of Multi-Asset and Solutions at QS Investors. “The Legg Mason Total Advantage Funds provide savers with the powerful combination of upside return potential through expert asset allocation and investment management with the added potential to help reduce volatility. Our primary goal is to provide the best possible outcome for retirees, through managing volatility and market risk to help minimize the impact on their hard-earned savings.”