As Erik Daley wrote last month in a blog post, we have three committees that drive our consulting activities. These committees are Vendor Services, Technical Services, and Investments. I thought it might be helpful for our clients to peek under the tent to see what topics are covered and how that impacts our work for the couple of weeks following a meeting. I’ll start with our last Investment Committee meeting, held just before Thanksgiving.
First, we meet on a monthly basis. There is a regular rotation of topics covered during the three monthly meetings held each quarter. In our November meeting we reviewed target date, stable value, money market, fixed income, asset allocation, and international equity funds.
Here is a brief summary of what we discussed at our last meeting in November:
- Target Date Funds
- The committee is considering whether to add a new series of target date funds to our recommended list. These new target date fund series offers a differentiated allocation to equity styles as the participant moves towards retirement in addition to the marketplace standard practice of reducing equity exposure in favor of fixed income and cash. The assigned investment analyst presented a review of their due diligence meeting with the target date fund manager and an update on changes to the strategy since we last reviewed the product.
- One fund family announced a lengthening of their rolldown from 10 to 30 years. After discussion, the investment analyst was asked to complete an ‘investment brief’ for inclusion in our year-end investment reports. This is a typical report for this type of strategy change. In addition, our chief investment officer (CIO) was asked to consider recordkeeping system and participant communication implications that our clients should discuss their recordkeeping relationship managers.
- Stable Return
- We discussed the low interest rate environment and the resulting impact on fixed accounts and stable value funds. Our investment analyst was asked to research further into current trade-offs of guaranteed rates with less liquidity. We will continue this discussion in the New Year.
- Fund Review
- The committee reviewed the funds used by our clients in the asset classes that were covered this meeting. A few funds were placed on our internal Watch List because of changes in the management team and a couple of funds were recommended for removal based on significant changes in investment strategy of the fund.
- Benchmark Review
- Annually, our investment committee reviews the benchmark indices that we use in our investment reports and quantitative scoring models to decide whether we should make any changes.
- Morningstar has reconstituted its fixed income universes into core and core opportunistic earlier this year. This change prompted the committee to review benchmark assignments for fixed income funds. Typically, fixed income funds are benchmarked against the Barclays Aggregate Bond Index. For core opportunistic funds, this benchmark doesn’t include their ‘plus sector’ exposure (e.g. high yield and non-dollar debt) which can be significant allocations for these managers. This difference raises questions about the appropriateness of the Barclays Aggregate Bond Index as the benchmark for these funds. After substantial discussion, our committee determined to leave the benchmark for this asset category as-is for this year and continue to monitor.
- The committee did choose to update a few smaller niche benchmarks based their discussion and analysis.
- Readers of this blog may see a future post on this subject as committee discussions often lead to future blog post topics.
- Manager Specific News
- We finished this section with the discussion of an unexpected death of a portfolio manager in a fund of funds structure. We discussed the impact to the overall fund and underlying management team. The assigned investment analyst was asked to provide a brief for upcoming investment reports.
- Follow-Ups
- The investment analyst team was assigned 10 investment briefs to write based on the committee’s analysis and discussion for the year-end reporting cycle.
- One research assignment was created to review current general account and stable value yields.
- Two funds were recommended for removal so our retirement plan analysts were notified of the impacted clients so they could begin the process of preparing the fund change recommendations and implementing the recommendations at the clients’ recordkeeper.
The meeting concluded with a reminder to be on the lookout for the draft minutes of this meeting and a reminder for the committee members to be prepared to help assist their consulting team members with any questions on decisions taken during the meeting.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.