“There are really four trends I see,” Steve Owen, head of intuitional business with Touchstone Investments, said matter-of-factly. “Two are obvious; the other two not as much.”
Owen, speaking about the near-term 401(k) outlook from Schwab Impact 2015 in Boston on Wednesday, noted the fact that target-date strategies are overwhelming target-risk. He also pointed to Qualified Deferred Investment Alternatives moving from stable value over the past few years to target-date strategies.
“The first involves getting onto a platform if you are not a proprietary target-date fund,” he explained. “How do you get onto their platform? There is a sweet spot for active managers for plans with between $5 million and $250 million, which is where we reside. Above that amount they are white-labeled; below that amount doesn’t make it worth anyone’s while.”
The second, he notes is simply a move away from revenue sharing models to the cheapest available funds.
“I saw this move early on, in 2007, which is when we came out with our institutional shares similar to R6. We wanted to have a proven track record by the time the trend hit. Here we are eight years later, and we were right.”
The two “not so obvious” trends involve both active share and impact investing. The former refers to the actual amount of active management an active manager undertakes.
“There is a place for both active and passive management, but not in between,” he argued when addressing active share. “If you’re going to be active, then be active—be different from, and outperform, the benchmark.”
Saving the best for last, Owen claims it’s the biggest trend he’s currently seeing, or at least the one that will eventually resonate most—investing in accordance with so-called environmental, social and governance principles and screens.
“Companies are doing it at the corporate level, it’s just a matter of time before they do it in their 401(k)s as well,” he concluded. “You aren’t seeing a lot now, but that’s about to change, probably within five years. Impact investing is a buzzword now, but will become increasing important, especially as millennials age.”
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
