THREE THINGS TO CONSIDER BEFORE ADDING EXTENDED AND ALTERNATIVE ASSETS TO YOUR PLAN’S INVESTMENT MENU Skip Summary
Extended and Alternative assets are a popular topic of conversation lately. As part of a professionally managed multi-asset class portfolio, Extended and Alternative asset classes have the potential to add alpha, manage volatility, and provide inflation protection. The operative words however are “professionally managed.” When used improperly these asset classes can have a paradoxical effect of potentially adding risk and increasing volatility, while eroding returns. Plan Sponsors need to assess their participants’ abilities to use these types of strategies appropriately and would be wise to think carefully about if and how they add them to an investment menu.
THREE THINGS TO CONSIDER:
1) There are many types of Extended and Alternative investments and each performs differently depending upon the current and expected macro interest rate environment. Do your participants have the ability to identify where the economy is within the interest rate cycle?
2) Do your participants know which Extended and Alternative Assets to use in times of increasing, decreasing, or steady interest rates?
3) If you do add them to the menu, consider technological guardrails that limit participants’ exposure percentages to these
asset classes or making professional investment advice or guidance available to participants.
Extended and Alternative Assets serve varying purposes in a diversified portfolio with respect to inflation. Plan sponsors must assess their participants’ ability to identify the stages of the inflation cycle. and know when and how to deploy the appropriate strategies. This is a lot to expect from the typical participant.
BNY Mellon Retirement is a dedicated team of experienced retirement professionals representing BNY Mellon Investment Management’s retirement investment solutions for the Defined Contribution and Insurance/VA businesses, including retail mutual funds, institutional zero revenue share mutual funds, bank-maintained collective investment funds for employee benefit plan investors, and institutional separate accounts.
For more information, please call 1-800-992-5560.