Evolve lifecycle strategies to improve retirement, Parametric says
Lifecycle investing is becoming an increasingly valuable option for superannuation funds that are aiming to construct a long-term default asset allocation strategy for their members, according to Parametric.
About 37 per cent of total MySuper assets and 31 of the registered 111 MySuper products available offer lifecycle investing, Parametric said.
And although these assets and products sit predominantly in retail superannuation funds, there is growing interest among industry and corporate funds.
Lifecycle strategies operate on the uncontroversial premise that with increasing age, fund members have a lower appetite for risk in their portfolio, according to Tom Lee, Parametric managing director, investment strategy and research, and Raewyn Williams, managing director, research Australia.
“So, the fund gradually de-risks members’ portfolio. What starts as a reasonably high-risk portfolio (high allocation to growth assets like equities) ends up as a low-risk portfolio (high allocation to defensive assets like cash and fixed income) as the mix of assets becomes more defensive over time,” they said.
Lee and Williams argue that lifecycle strategies can be a powerful tool for many funds which can be “sharpened further,” especially when it comes to the use of asset classes.
“Funds that add this sharper tool to their lifecycle portfolio take a crucial step toward genuinely addressing retirees’ ‘triangle of needs’ identified in the Financial Systems Inquiry – income, risk management and flexibility.”
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