Chuck Thompson has a problem (or conundrum, as he calls it).
The head of distribution for Henderson Global Investors has a laser-like focus on the 401(k) space, but it’s a tough target, especially for an active manager.
“You’ll always have the active vs. passive debate, which is good, because you need both,” Thompson explained from Schwab Impact in Boston on Wednesday. “Yet there are all these boutique active managers that want to establish a beachhead in the 401(k) space that cost more, so how do they do it?’
A great question, and one he’s set out to answer.
“Integrated long-only funds are typically too expensive for a defined contribution format, so I created a completely new product that addresses that business,” he added. “It’s our International Select Equity fund, which has 40 stocks—the lowest amount of just about any global diversification fund out there, which typically have about 200 stocks. I also priced it about 50 percent lower than what you would normally see with this type of fund.”
Arguing that passive popularity wanes in periods of market volatility, a low-cost active fund is the next best thing, he reasoned, so he’s positioning himself for the “five years to come.”
So how is it going in the 11 months since its launch?
“We’re in the first percentile of performance,” he proudly stated, emphasizing the fund’s 65 basis point price.
Currently marketed to RIAs as an alternative to a more expensive open-ended flagship fund, he sees it as positioned alongside a passive allocation.
“Fama-French research finds that a 60/40 portfolio of higher-cost active and lower cost active actually performed best over the previous 50-year period through Dec. 31, 2014,” he said, referencing data presented earlier at the conference. “On top of that, it was the most tax-efficient. So something like this absolutely makes sense for the 401(k) framework.”
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.
