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How are clients thinking about decision making in this time frame
April 24, 2020
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Aruna Hobbs

This post is sponsored by MassMutual.

 

Market volatility has left many investors looking to better diversify portfolios and manage risk. There are opportunities in this environment to better position investments for the long term.

In this post, we talk with Aruna Hobbs, head of Institutional Investments at MassMutual, about how clients can evaluate their investment plans and better position themselves to achieve long-term financial goals.

 

Can you provide perspective on market conditions and how they compare with past crises?

The longest bull market in history ended in March when the S&P 500® went from a record high to a bear market in less than a month. Unlike previous crises, current conditions did not start in the financial system. COVID-19 is an international health crisis that is unprecedented in our lifetimes.

As the economy contracts as businesses shut down and people are required to social distance, production and consumption of goods and services have stalled. The rapid market decline reflects uncertainty, fear and loss of optimism as corporate earnings come under pressure and as unemployment increases. Historic monetary and fiscal policies have been enacted to contain and mitigate the economic impact, and questions remain on the duration and economic damage from the crisis.

Yet, all market dislocations adhere to certain characteristics. Asset classes almost always overreact as market participants embark on price discovery. It is this overreaction that creates meaningful opportunities for long-term investors.

 

How are you assisting clients as they evaluate their plan investment lineups, given the environment?

We believe a well-diversified menu of investment options with a focus on plan type and governing documents, such as investment policy statements, is important. This menu should include target-date and target-risk portfolios, such as qualified default investment alternatives, individual retirement-focused investment funds, and stable value and principal-protected options. Combined with regular participant education and wellness programs, a broad menu can help sponsors and participants weather most market conditions as they seek to achieve financial goals.

The cardinal rule for increasing retirement savings is early contributions and balanced diversification of investments. During a plan’s due diligence process for the fund lineup, key criteria for selection include performance, risk, peer rankings, fees and reputation. An optimal investment lineup is typically customized to the plan-specific design and demographics, as well as guided by a well-constructed investment policy statement and governance standards.

 

How can you help mitigate downside risk in the investment lineup and enable participants to make better decisions?

In times of extreme volatility, conservative investments typically become a haven. By definition, capital-preservation investments, such as stable value solutions, protect and preserve principal and are staple investment options in every plan lineup.

MassMutual’s multimanaged mutual fund complex is also built to mitigate downside risk, utilizing our open architecture platform across asset classes and investment styles. The philosophy across the platform is to provide durable and persistent returns with lower volatility desired by a retirement- focused objective. The unbiased subadvised model lets funds access complimentary investment approaches and diversify risk. By combining highly skilled asset managers, each fund seeks to provide a smoother performance than that provided by a single manager.

Behavioral finance studies show loss aversion outweighs the desire for high returns. During volatility, that preference becomes increasingly apparent as stability becomes the overriding concern. As the first quarter has ended, it is a good time for plan fiduciaries to evaluate investment lineups and focus on solutions with strong diversified, risk-managed strategies that have a track record of reduced downside risk.

 

How are you assisting the defined-contribution retirement marketplace, given the current environment?

Our clients are dealing with multiple challenges in an unusually stressed environment. The focus underpinning MassMutual’s 168-year mission has been to improve financial futures over the long term. This approach drives our long-term investment perspective and the ability to stay invested throughout market cycles while assuming appropriate risk.

As plan sponsors adjust to the new normal, we are here to provide assistance in considering options. We are actively listening to their needs as a key consultative and deeply resourced partner. We are offering help on myriad issues, such regulatory changes (CARES and SECURE acts), plan governance, investment expertise and thought leadership.

 

For access to some of these resources, please visit massmutual.com/lp/navigating-uncertainty.

 

Aruna Hobbs is Head of Institutional Investments responsible for overseeing the growth and overall management of stable value investments and the award-winning family of MassMutual funds offered on external recordkeeping platforms. Joining MassMutual in 2014, she brings almost 25 years of knowledge and expertise managing investment related businesses in leadership roles overseeing strategic client relationships, sales and distribution, product development, P&L, asset liability risk management, delivering a broad spectrum of investment and stable value solutions to the institutional marketplace.

 

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