The poor performance of the target date funds, especially during the two major bear markets since 2000, highlights one of the core tenets of Swan Global Investments’ philosophy.
We believe that traditional asset allocation and diversification fails to sufficiently protect wealth during periods of severe market downturns.
After all, the textbook descriptions of asset allocation often state that market risk, or systematic risk, simply cannot be diversified away. The vast majority of target date funds seem to passively accept this risk by holding the vast majority of their assets in simple stock-bond combination.
Source: Morningstar and Swan Global Investments, LLC
The Defined Risk Strategy differs from this passive approach. The DRS takes an active role in confronting market risk and does so via clever hedging strategies. Our distinct investment approach has been applied to a range of asset classes in a suite of DRS mutual funds.
Originally applied to U.S. large cap stocks in 1997, the DRS is now available on U.S. small cap stocks, foreign developed market equities, and emerging market stocks.
Moreover, Swan Global Investments in conjunction with Gordon Asset Management has recently unveiled a family of collective investment trusts (CITs) utilizing the DRS. Given target date funds’ poor performance based upon traditional asset allocation described previously, we believe the DRS addresses the biggest shortcoming in an otherwise practical idea.
The myriad of problems facing baby boomers as they enter retirement are explored further in the Swan white paper, “The Retirement Conundrum: Untying the Gordian Knot.”