Read time: 5 minutes
Aliaga-Díaz is the chief economist for the Americas and head of portfolio construction, and Roach is a senior manager and head of multiasset portfolio management.
During a recent webcast, Aliaga-Díaz and Roach discussed managing one of the industry’s largest TDF series and shared their perspectives on key trends in the target-date fund space. Their conversation was moderated by Jane Greenfield, principal and head of consultant relations.
Here are a few highlights from the event. You can also view the full webcast if you prefer.
A consistent investment strategy
Both Aliaga-Díaz and Roach talked about being members of Vanguard’s Strategic Asset Allocation Committee (SAAC), which oversees and governs the asset allocation methodology of Vanguard TDFs. Aliaga-Díaz, who is also the committee’s vice chairman, described how the SAAC ensures a consistent approach to meet the retirement goals of TDF investors.
The committee—composed of global senior investment leaders from across Vanguard—engages in debates on various topics and constantly evaluates ways to improve TDFs to meet the evolving needs of investors. However, the committee also maintains a high bar for change.
Asset allocation diversification and rebalancing are key
Vanguard's TDFs are well diversified. In fact, Roach emphasized that they’re some of the most diversified funds in the TDF industry, with significant coverage of global liquid market cap.
He also explained that Vanguard’s TDFs use only five underlying building blocks, which allows our funds to be better understood by investors.
A commitment to research and tracking investment trends
As the TDF industry continues to evolve, Vanguard is paying close attention to new trends and products. A current hot topic for plan participants and consultants is hybrid annuity TDFs, or annuities embedded within TDFs.
Aliaga-Díaz acknowledged that, through the eyes of investors, this new breed of TDFs is exciting. But he cautioned that they’re not for everyone.
“From the investment side, we ran our proprietary Vanguard Life-Cycle Investing Model, where we embedded a variety of guaranteed income annuities in them to assess the impact,” he said. “And we found that, actually, they're effective. They do mitigate longevity risk, so they do work from a pure investment perspective.”
He added: “But then, in spite of those benefits, we also ran some points from client studies, and we found there are some challenges, particularly from the implementation perspective, as well as from the suitability assessment of the participants.”
For more information about our approach to TDFs, you can view the full webcast to hear from Vanguard’s portfolio managers.
Notes:
- For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
- All investing is subject to risk, including possible loss of principal.
- Investments in Target Retirement funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. The Income fund has a fixed investment allocation and is designed for investors who are already retired. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
- Diversification does not ensure a profit or protect against a loss.
- Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
