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Whether a plan sponsor favors active or passive management, choosing a target date manager is an active decision that may have much greater fiduciary considerations than the costs of the underlying funds. The very definition of “passive” is unclear, and the glide path and asset allocation will likely have much greater impact than the potential cost savings on passive funds.
Regulatory changes, ever-evolving trading technology and the use of commission sharing arrangements (CSAs) have caused secular changes in the dynamics of both buy-side and sell-side business models and approaches to trading. Fragmentation has also transformed the order size/frequency disparity; the difference between average order size and average trade size has dramatically decreased while the frequency of trades has skyrocketed, resulting in a much more dynamic intraday size/volume profile with potential for greater velocity in pricing and thus market impact. In evaluating active equity managers, investors should consider their awareness and management of the forces at play in equity trading today, especially their understanding of market structure.
Voya’s third survey of participant preferences in target date funds finds that two-thirds of retirement plan participants prefer target date funds which offer a mix of actively and passively managed components. The survey also confirms earlier findings that participants who use target date funds have greater confidence in their investments than those who don’t. The white paper with the full 2015 results, as well as the two previous surveys conducted in 2011 and 2013, can be found here.
After more than 20 years of persistently declining interest rates, the fixed income investment environment has grown more challenging of late — perhaps as challenging as it has ever been — as the low yields that have dominated the marketplace in recent memory are being supplanted by fears that rates are beginning to move higher.