In global terms, a strong fourth quarter performance in equities in 2014 supported the longer-dated end of the main target date indices. The rolling 36 month risk adjusted data creates a suitable 3 year review cycle. In the US, the strong quarter for stocks in absolute terms and relative to global equities supported risk-adjusted returns at the long-dated end of the main index families. At the shorter-dated end, higher allocations to conventional government and corporate debt supported risk-adjusted returns relative to the Treasury Inflation Protected Security Index (TIPS).
In the UK, Q4 2014 saw the launch of the first target-date index by FTSE in conjunction with investment research and advisory firm, Elston Consulting. The new range of products have been designed specifically as a performance benchmark for UK Defined Contribution (DC) pension schemes, to assist sponsors, fiduciaries and pension fund decision-makers evaluate performance of their DC investment strategy. The benchmark promotes additional transparency and enables a framework for comparison against a range of DC strategies in the UK.
Furthermore, in the UK in Q4 2014 global equity performance continued to dominate the national equity benchmark on a risk-adjusted basis and index-linked gilts continued to show a higher then trend level of volatility which affects the shorter-dated end of the index family.
Henry Cobbe, Head of Research, Elston Consulting commented: “The performance of global equities has boosted the performance of target date indices over the rolling 3 year period under review, which is good news for schemes across the globe. The need for greater transparency in the DC market is being realised with indices such as those introduced by FTSE, and we anticipate the introduction of more products designed to aid those working with the DC pension space in 2015.”
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