Charles Schwab Trust Bank and Schwab Asset Management have announced some of its latest updates to its Schwab Target Date Solutions.
According to a new release by the organization on its 2023 Policy Allocations and custom index allocations, the changes include an increase on U.S. large cap equity and a decrease on international and emerging markets with a range of 2% at the beginning of the glide path to 1% by the end of the glide path.
Charles Schwab goes to explain the rationale behind its changes on equities, explaining that higher expected volatility for international equities, along with high inflation and challenges to emerging market economies like deglobalization, slowing real estate demand, less free-flow of capital and restrictive policies from COVID-19, each factored into the change.
On the fixed income side, Charles Schwab is increasing intermediate-term bonds and decreasing short-term bonds by up to 2.5% by the end of the glide path, due to higher expected long-term returns in the next decade. Charles Schwab added that relative to short-term bonds, intermediate-term bonds generally offer lower correlations to equities and can improve portfolio efficiency during volatile equity markets and periods of slow economic growth.
Within the Schwab Managed Retirement Trust (SMRT), Charles Schwab said it will be adding the Schwab U.S. Dividend Equity ETF (SCHD), increase allocations to the BNY Mellon Large Cap Stock Index Fund and Schwab Institutional Small Cap Trust, and reduce allocations to Schwab Institutional Large Cap Value Trust, Schwab Institutional Large Cap Growth Trust, and Vanguard Mid-Cap Index Fund (VMCPX).
In its rationale for the changes, Charles Schwab said the concentration of active risk will be reduced by decreasing allocations to actively managed U.S. large cap equity strategies and increasing allocations to U.S. small cap equity strategies, and reduced style biases will further help to diversify the portfolios.
Within the Schwab Target Funds (STAR) Portfolio Enhancements, Charles Schwab is adding the Schwab Fundamental International Large Company Index Fund (SFNNX) and decreasing the allocation to the Schwab International Opportunities Fund (SWMIX).
Similar to its rationale for the changes in the SMRT, Charles Schwab said the concentration of active manager risk would be reduced by decreasing allocations to an actively managed international equity strategy and adding an allocation to fundamentally oriented international equity strategy. Charles Schwab also argues that the new strategy improves the balance between value and growth and reduces non-benchmark risk, such as exposure to emerging market equities.
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