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What’s ‘Short Term-ism’ and Why Does it Matter? 2017 NAPA 401k Summit

It's creeping back into the market

401k, passive management, active management,Why the passive management deluge could lead to disaster.

Say this for MFS Investment Management—they’ve managed through market cycles; many and multiple market cycles. The Boston-based investment stalwart (it’s in the name after all, M for Massachusetts) lays claim to the very first mutual fund, dating back to 1924.

And it’s this long view that has the firm’s focus, something that’s especially important with all that’s  happening currently, with both the market and in Washington.

“We’re thinking a lot about helping to ensure clients invest with discipline,” says Ryan Mullen, senior managing director of national sales with the company, from the floor of the 2017 401k Summit in Las Vegas. “We see a lot of ‘short term-ism’ creeping back into the market.”

He notes the natural byproduct of six-plus years of solid equity performance, where painful memories fade away, and that too many investors are now only looking at one-half of the cycle, which is the upside.

It’s where they’re choosing to place their investments in the upside that’s putting them at risk, he adds, as the other half of the cycle is bound to come (it always does) with nothing allocated to downside protection.

“We seeing this massive flow into passive strategies based on two things; regulation and fees,” Mullen says. “Active management fees are coming down as a result, which is a good thing, but they’re not looking under the hood at all the other risks than can affect the portfolio, since their only basin the decision on regulation and fees.”

As a result, MFS feels investors may be leaning too heavily on passive strategies.

“We’ve been doing this for a long time, and always acting in some sort of fiduciary capacity. Certainly the majority of our DC business is in a fiduciary capacity; helping clients to deal with it from an operational standpoint.”

Mullen emphasizes the firm is “vehicle and product agnostic,” managing a plethora of mutual funds, collective investment trusts, R shares and zero revenue shares (their R6 shares) to which they were early entrants.

“It’s important to provide the strategy and then allow the client to tap into it,” he says.

He offers one last point in relation to the firm’s “DC perspective” on target date strategies.

“We’re all about risk management, and what’s under the hood. Too many investors are looking at newer strategies that weren’t even around 10 years ago of even through 2008. They didn’t manage through a full market cycle which, again, is very dangerous.”

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