Columbia Threadneedle Investments has launched a new target date solution for the retirement marketplace, the Columbia Adaptive Retirement Series.
Based on the firm’s proprietary Adaptive Risk Allocation methodology, the solution aims to provide investors with capital appreciation and current income consistent with the target retirement year while seeking to smooth the ride through volatile markets.
In developing this new retirement solution, Columbia Threadneedle has employed its award-winning1 investment approach that allocates risk rather than capital in multi-asset portfolios to provide stronger diversification benefits than a traditional target date portfolio. Jeff Knight, Columbia Threadneedle’s global head of investment solutions and lead portfolio manager for the series, is a proven innovator in multi-asset investing, and developed the Adaptive Risk Allocation methodology in an effort to improve asset class diversification and consistency of returns.
Risk allocation seeks to distribute risk across four major asset classes: global equity, global inflation-hedging assets, global interest rates and global spread assets. Columbia Threadneedle incorporates it in several investment solutions, most notably the Columbia Adaptive Risk Allocation Fund, Knight’s flagship product with $2.4 billion in AUM.2 The methodology employs a rules-based market state classification designed to identify exceptions to normal market conditions and offers the ability to reallocate risk systematically and meaningfully as market conditions change. Aligning portfolio allocations with the current market environment provides investors with a potentially superior risk-return profile.
The Adaptive Retirement Series currently consists of five target date funds, spanning the 2020, 2030, 2040, 2050 and 2060 vintages; five-year vintage funds may be added at a later date. The funds seek exposure to a global portfolio of stocks, bonds and inflation-hedging assets (commodities, TIPS and REITs). The target date funds offer competitive pricing, with a net expense cap of 0.50% for zero-revenue sharing Institutional 3 Class shares and 0.68% for Advisor Class shares through July 31, 2019.3 The Adaptive Retirement Series is available initially in a mutual fund and may also be available subsequently in a Collective Investment Trust.
“We believe that a risk-allocated investment offers a potentially superior risk-return profile relative to a capital- allocated investment,” says Knight, global head of investment solutions and senior portfolio manager at Columbia Threadneedle Investments. “We have designed a systematic process that determines when and how the investment will respond to changing market conditions.”
The Adaptive Retirement Series also offers a unique approach to the lifecycle concept of asset allocation. Target date strategies typically offer a glidepath that automatically reallocates assets to a more conservative profile as the target retirement date approaches. Conventional target date strategies reduce the allocation to equities over time. This approach can lead to inferior diversification at both ends of the glidepath, with high concentration to equity risk at one end and high exposure to interest rate risk at the other. The Columbia Threadneedle solution maintains a diversified risk allocation throughout the lifecycle, reducing aggressiveness along the glidepath without sacrificing asset class diversification.
“We are pleased to bring this innovative investment approach to the retirement marketplace,” says Dan Steele, national sales manager, DCIO at Columbia Threadneedle Investments. “We believe that although target dates and other one-decision funds have provided enormous benefits for defined-contribution participants, the type of innovation that Columbia Threadneedle can provide with our multi-asset solutions may lead to better outcomes for defined-contribution plan participants.”