What Critical Gaps Are in
Your Retirement Plans?
Learn why fixed income deserves a closer look.
Fixed income options have received neither the attention nor
prominence of equity alternatives in most defined contribution
menus. Research shows that:
Equity Dominates
3:1
Equity options outnumber fixed income options in DC plans 3:1
3 Fixed Income Options
in Plan Lineup
Financial professionals indicated they typically recommend 3 fixed income options for a plan lineup
The Quality Factor
of 92%
92% of financial professionals consider quality an “essential” or “preferred” factor for fixed income in DC plans
Fewer than
4 in 10
Fewer than 40% of financial professionals incorporate a style box in their fixed income recommendations
The Four Challenges of Fixed Income in Retirement
Our assessment of The Four Challenges of Fixed Income in Retirement Plan Lineups is based on Janus Henderson’s Portfolio Construction and Strategy (PCS) team’s numerous deep-dive plan lineup reviews.
Following are the four most common gaps we have uncovered:
1. Overlap
The risk and return statistics of Core and Core-Plus are extremely similar, highlighting the importance of offering plan participants investment options with distinct and complementary exposures.
| 10-YEAR RETURN | 10-YEAR STANDARD DEVIATION* |
10-YEAR MAXIMUM DRAWDOWN |
|
|---|---|---|---|
| U.S. Fund Intermediate Core Bond | 3.04 | 2.87 | -4.00 |
| U.S. Fund Intermediate Core-Plus Bond | 3.49 | 3.16 | -4.07 |
| U.S. Fund Intermediate Core Bond | |
|---|---|
| 10-YEAR RETURN | 3.04 |
| 10-YEAR STANDARD DEVIATION* | 2.87 |
| 10-YEAR MAXIMUM DRAWDOWN | -4.00 |
| U.S. Fund Intermediate Core-Plus Bond | |
|---|---|
| 10-YEAR RETURN | 3.49 |
| 10-YEAR STANDARD DEVIATION* | 3.16 |
| 10-YEAR MAXIMUM DRAWDOWN | -4.07 |
0.96
Correlation* between Morningstar Core Bond and Core-Plus Bond categories
Source: Morningstar, as of 12/31/21
Correlation measures the degree to which two variables move in relation to each other. A value of 1.0 implies movement in parallel, -1.0 implies movement in opposite directions, and 0.0 implies no relationship.
Standard Deviation measures historical volatility. Higher standard deviation implies greater volatility.
2. Diversification
The heavy focus on government-related securities in Core and Core-Plus means the trade-off between yield and duration is currently at its weakest and potentially exposes plan participants to too much rate risk (duration)* without proper compensation (yield), compared to historical norms.
Source: Bloomberg, as of 12/31/08 and 12/31/21
Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.
3. A Better Understanding of Specific Risks
Categories like multi-sector bond and world bond offer opportunities for diversification but they come with their own challenges. For example, world bond categories may have the potential for more volatility because of greater currency risk than participants may expect.
| 10-YEAR RETURN | 10-YEAR STANDARD DEVIATION* |
10-YEAR MAXIMUM DRAWDOWN |
|
|---|---|---|---|
| U.S. Fund World Bond | 2.11 | 4.39 | -7.20 |
| U.S. Fund World Bond – USD Hedged | 3.36 | 3.00 | -4.12 |
| U.S. Fund World Bond | |
|---|---|
| 10-YEAR RETURN | 2.11 |
| 10-YEAR STANDARD DEVIATION* | 4.39 |
| 10-YEAR MAXIMUM DRAWDOWN | -7.20 |
| U.S. Fund World Bond – USD Hedged | |
|---|---|
| 10-YEAR RETURN | 3.36 |
| 10-YEAR STANDARD DEVIATION* | 3.00 |
| 10-YEAR MAXIMUM DRAWDOWN | -4.12 |
Morningstar source date to 12/31/21
4. A Failure of Traditional Measures
Risk can be difficult to assess for fixed income categories because those categories that contribute the most potential diversification for a plan lineup were created specifically to be different from the traditional benchmarks.
To evaluate the asset class, we suggest isolating discrete time periods of particular risk/reward patterns and comparing and contrasting manager success solely within those parameters.
| GOVT ALLOCATION (%) | DURATION (YRS.) | 12-MONTH YIELD | 5-YEAR RETURN | |
|---|---|---|---|---|
| U.S. Fund Intermediate Core Bond | 31.56 | 6.10 | 1.78 | 3.42 |
| U.S. Fund Intermediate Core-Plus Bond | 29.92 | 5.82 | 2.12 | 3.89 |
| U.S. Fund Multisector Bond | 14.03 | 3.59 | 3.17 | 4.20 |
| U.S. Fund Intermediate Core Bond | |
|---|---|
| GOVT ALLOCATION (%) | 31.56 |
| DURATION (YRS.) | 6.10 |
| 12-MONTH YIELD | 1.78 |
| 5-YEAR RETURN | 3.42 |
| U.S. Fund Intermediate Core-Plus Bond | |
|---|---|
| GOVT ALLOCATION (%) | 29.92 |
| DURATION (YRS.) | 5.82 |
| 12-MONTH YIELD | 2.12 |
| 5-YEAR RETURN | 3.89 |
| U.S. Fund Multisector Bond | |
|---|---|
| GOVT ALLOCATION (%) | 14.03 |
| DURATION (YRS.) | 3.59 |
| 12-MONTH YIELD | 3.17 |
| 5-YEAR RETURN | 4.20 |
Source: Morningstar, as of 12/31/21
Why Janus Henderson
for Defined Contribution?
Depth of Experience
45+ years of industry experience with products available on more than 200 record keeping platforms
Innovative Investment Solutions
A wide range of asset classes across vehicles appropriate for retirement plans including mutual funds, CITs and subadvised portfolios
Client-Focused
National, regional and local support for retirement plan professionals, plan sponsors and participants
Investment Ideas
JMTNX
Multi-Sector Income Fund
Invests in both core and plus sectors of the fixed income market, seeking to generate higher returns than traditional core plus portfolios without a substantial increase in volatility or risk.
HFARX
Developed World Bond Fund
Investing across a wide range of fixed income securities, the Fund seeks income and total return while actively managing duration and credit exposure.
JDFNX
Flexible Bond Fund
For over 30 years, this active fixed income strategy has been anchoring investor portfolios given its focus on risk-adjusted returns and capital preservation.
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