- Market and regulatory events are challenging corporate pension plans to find innovative ways to manage drawdown risk and improve the health of their plans.
- To achieve these goals, plan sponsors need to optimize the trade-off between funded status and surplus volatility, a challenge historically addressed within hedging assets.
- We suggest that plan sponsors should also analyze their growth assets for ways to reduce surplus volatility while still seeking long term returns.
- QMA’s US Market Participation Strategy (MPS)—with its asymmetric return profile and low correlation to other growth assets demonstrated over a 24-year track record—can help plans manage surplus volatility by reducing drawdown risk while providing attractive returns.*
- Low Volatility/Defensive equity strategies (long positions in historically low beta stocks).
- Buy/Write option strategies (earn option-writing income to offset potential losses in down markets).
- Structured products (long-dated call options combined with US Treasuries in an actively managed portfolio) that provide upside participation with downside protection, a prime example being QMA’s Market Participation Strategy (MPS).
For more information To learn more about QMA’s asset allocation capabilities, please contact Stephen Brundage, Managing Director and Product Specialist, at Stephen.Brundage@qmassociates.com or 973.367.4591. About QMA Since 1975, QMA has served investors by combining experienced judgment with detailed investment research with the goal of capturing repeatable long-term outperformance. Today, we manage approximately $112 billion* in assets globally for a worldwide institutional client base, including corporate and public pension plans, endowments and foundations, multi-employer pension plans, and sub-advisory accounts for other financial services companies. *As of 6/30/2016.
These materials represent the views, opinions and recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered and to such person’s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of Quantitative Management Associates LLC (“QMA”) is prohibited. Certain information contained herein has been obtained from sources that QMA believes to be reliable as of the date presented; however, QMA cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. QMA has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision. Past performance may not be indicative of future results. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from this report. QMA and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of QMA or its affiliates. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients or prospects. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. For any securities or financial instruments mentioned herein, the recipient(s) of this report must make its own independent decisions. Performance results are stated gross of model fees for the US Market Participation Strategy. QMA’s highest advisory fee in effect for each period is the model fee used to calculate net of fee performance. The fee used to calculate the net returns is .30% and prior to July 1, 1999 it was .50%. Performance has been calculated in US dollars and reflects the reinvestments of dividends and other earnings. Returns for each client will be reduced by such fees and expenses as described in their individual contract. Actual advisory fees charged and actual account minimum size may vary by account due to various conditions described in QMA’s Form ADV Part 2A. The composite shown may include accounts that are group annuity or life insurance products issued by The Prudential Insurance Company of America. The annualized return is equivalent to the annual return which, if earned in each year of the indicated multi-year period, would produce the actual cumulative return over the time period. Past performance is not a guarantee or a reliable indicator of future results. The financial indices referenced herein are provided for informational purposes only. Additional factors impacting the performance displayed herein may include portfolio-rebalancing, the timing of cash flows, and differences in volatility, none of which impact the performance of the financial indices. Financial indices assume reinvestment of dividends but do not reflect the impact of fees, applicable taxes or trading costs which may also reduce the returns shown. You cannot invest directly in an index. eVestment Alliance is an outside vendor whose software has been used to create this exhibit. QMA pays a fee for this software. QMA has made efforts to confirm accuracy/reliability of the data provided by eVestment Alliance but we disclaim responsibility for its accuracy or completeness. Zephyr is an outside vendor whose software has been used to create this exhibit. QMA pays a fee for this software. QMA has made efforts to confirm accuracy and reliability of the data provided by Zephyr but we disclaim responsibility for its accuracy or completeness. S&P 500 Index is an unmanaged index of 500 common stocks, weighted by market capitalization, representing approximately 75% of the New York Stock Exchange. Dividend income is reinvested. Source of the S&P 500 Index: Standard & Poor’s. “Standard & Poor’s”, “S&P”, “S&P 500”, “Standard & Poor’s 500” and “500” are trademarks of McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance Company of America and its affiliates and subsidiaries. The product is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the product. Barclays US Long Government/ Credit Index is a broad-based index composed of government and corporate debt issues that are investment grade (rated Baa/BBB or higher). The index includes publicly issued U.S. Treasury debt, US government agency debt, taxable debt issued by US states and territories and their political subdivisions, debt issued by U.S. and non-US corporations, non-US government debt and supranational debt. Source of the Barclays US Long Government/ Credit Index: Barclays. CBOE S&P 500 Buy-Write Index (BXM) is a benchmark index developed by CBOE and Standard & Poor’s to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The S&P 500 Buy-Write strategy involves buying the entire stock portfolio covered by the S&P 500 Index and selling equivalent number of near-term slightly out-of-the-money S&P 500 index call options on a monthly basis. S&P 500 Low Volatility Index measures performance of the 100 least volatile stocks in the S&P 500. The index benchmarks low volatility or low variance strategies for the U.S. stock market. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights. Barclays US Aggregate Bond Index is composed of U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities, and commercial mortgage-based securities with maturities of at least one year. Source of the Barclays US Aggregate Bond Index: Barclays. Certain information contained herein may constitute “forward-looking statements,” (including observations about markets and industry and regulatory trends as of the original date of this document). Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making any decisions. No representation or warranty is made as to the future performance or such forward-looking statements. Copyright 2016 QMA. All rights reserved. QMA20160916-313