Prudential Investments Mutual Funds, part of Prudential Financial, spends a lot of time providing thought leadership with input from Prudential Financial’s affiliated institutional managers. A topic it has recently given much attention to is fixed–income choices in defined–contribution (DC) plans. In 2012, Prudential Investments Mutual Funds published the white paper, Insights on Investing: Fixed Income Options within DC Plans, for the purpose of initiating dialogue with advisors and consultants.
In this three-part blog series sponsored by Prudential, we will examine how fixed income can enhance retirement menus. This interview was originally published in the November 2012 issue of Financial Advisor Magazine.
Jerilyn Klein Beir, a contributing editor for Financial Advisor magazine held a roundtable discussion on the topic of fixed –income choices with participants including Michael Rosenberg, senior vice president and director of IODC Distribution for Prudential Investments; Robert Tipp, managing director and chief investment strategist for Prudential Fixed Income; and Michael J. Collins, senior investment officer and portfolio manager for Absolute Return Bond and Core Plus Fixed Income Strategies at Prudential Fixed Income.
In today’s Part 3, we will examine how financial advisors can help in this effort.
In Part 1, which was published May 22, the experts explained why offering a wider selection and variety of fixed-income choices to DC plan menus can potentially provide higher returns, greater diversification and less volatility to retirement portfolios.
Part 2 of the interview, which was published June 14, explored ways to construct better portfolios through the use of these plans.
There are important qualities advisors should be looking for when selecting fixed–income managers. Finding the appropriate manager is “as important as picking the fund and the style of the fund,” Collins states. Stability is also important in that team, he says. “You also want a team with deep resources, really strong research and risk management capabilities, great systems and processes, and a proven long-term track record that’s managed through different economic cycles,” Collins notes.
Skills are also essential, Tipp notes, saying, “ it’s important to hire asset managers with a wide range of skills that can use the full spectrum of sectors and instruments available. While a manager using a narrow range of skills may be successful in certain market environments, I believe a manager with broad skills and experience should be able to deliver consistently competitive performance over the long term.”
However, you can’t forget that you need a manager who “has size and scale” to get you what you need at the right price and right time, Rosenberg notes.
The experts were asked to give a rundown of some sectors advisors may want to think about too.
Tipp says, “experienced asset managers – for core/core plus funds, high-yield bond funds, and global bond funds – should be actively allocating across sectors to try to capture the most attractive relative value opportunities. U.S. multi-sector managers should be analyzing trends and value propositions across the fixed–income spectrum: government bonds, mortgage-backed securities, structured product, taxable municipal bonds, corporate bonds, and even crossover, non-investment grade, and emerging markets debt. High–yield bond managers must have expertise analyzing the full ratings spectrum of both fixed–rate bonds and floating–rate loans, as well as the European and Asian high–yield markets, where important opportunities also exist. At the global level, astute managers must allocate across all of these sectors, in both developed and developing countries’ bond and currency venues.”
Consistency is very important from managers who provide fixed income investments for DC menus, according to Rosenberg. In addition, “sticking to the mandate they’re hired for and producing the results that are expected within that mandate. Plans are created and menus are created with very specific intents. So if you hire someone to manage a higher rated high yield fund, you want them to manage a higher rated high yield fund and not necessarily reach into the lower grade because there’s an opportunity there. Information flow – through attribution reports, manager commentary or fund fact sheets – is also important.”
In this three-part blog series sponsored by Prudential, we examined how fixed income can enhance retirement menus. This interview was originally published in the November 2012 issue of Financial Advisor Magazine. Learn more from this video by Rosenberg. Additional information may be found in this white paper.
Mutual fund investing involves risk. Some mutual funds have more risk than others. The risks associated with investing in these funds include but are not limited to: high yield (“junk”) bonds, which are subject to greater market risks; foreign securities, which are subject to currency fluctuation and political uncertainty; and emerging markets, which are subject to greater volatility and price declines. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost, and it is possible to lose money. There is no guarantee a Fund’s objectives will be achieved. The risks associated with each fund are explained more fully in each fund’s respective prospectus. Fixed income investments are subject to interest rate risk, where their value will decline as interest rates rise. Diversification does not guarantee a profit or protect against a loss in declining markets.
Past performance is no guarantee of future results.
Consider a fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus and summary prospectus contain this and other information about the fund. Contact your financial professional for a prospectus and summary prospectus. Read them carefully before investing.
Mutual funds are distributed by Prudential Investment Management Services LLC, a Prudential Financial company. Prudential Fixed Income is a unit of Prudential Investment Management, a registered investment adviser and Prudential Financial company. Prudential Investments, Prudential, the Prudential logo, Bring Your Challenges and the Rock symbol are service marks of Prudential Financial, Inc., and its related entities, registered in many jurisdictions worldwide.
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