Products October 15, 2020

Investment Product and Service Launches

Pentegra and IQCIO announce new ETF model portfolios; Invesco QQQ suite reveals additional offerings; Vanguard adds Sprucegrove to oversee value fund; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

Pentegra and IQCIO Announce New ETF Model Portfolios

Pentegra and IQCIO have introduced the Pentelligent Portfolios, a series of risk managed model portfolios comprised exclusively of exchange-traded funds (ETFs). 

Pentegra has partnered with IQCIO to construct the series using the same institutional investment approach, strategy and process offered to its retirement plan clients. 

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“Through our collaboration with the IQCIO team, the Pentelligent Portfolios aim to deliver smarter solutions, capturing the key strengths of both organizations: Pentegra’s fiduciary investment approach and IQCIO’s quantitative approach to portfolio management,” says Pentegra Chief Investment Officer (CIO) Scott Stone.

IQCIO Managing Partner Ted Potter continues, “Investors are looking for ways to build their savings while defensively participating in the appreciation potential offered by equity markets. The challenge is how to participate in the upside while mitigating losses during periods of high volatility.”

Each portfolio is constructed along conventional risk tolerance lines. The portfolios are designed to manage downside risks more intelligently, provide dynamic risk management and strategic asset allocation for advisers and offer more consistent performance in order to seek long-term outperformance of broad-based benchmarks.

Invesco QQQ Suite Reveals Additional Offerings

Invesco Ltd. today announced the launch of the Invesco QQQ Innovation Suite, which offers investors access to the Nasdaq 100 Index and Nasdaq Next Generation 100 Index through a variety of investment structures and exposures.

The Invesco QQQ Innovation Suite advances the growing concept that innovation in investing continues to drive benefits to the end investor, not just through direct cost-savings, but in the personalization of the investment model. The Invesco QQQ Innovation Suite meets clients’ implementation preferences, providing every type of investor a simple way to invest in ingenuity and innovation. 

“When it launched 20 years ago, the Invesco QQQ ETF [exchange-traded fund] (QQQ) was a pioneer in simplifying how investors gained access to companies within the Nasdaq 100 Index. With the launch of the Invesco QQQ Innovation Suite, we are expanding on this and offering additional ways to access companies at the forefront of innovation,” says John Hoffman, head of Americas, ETFs & Indexed Strategies, Invesco. “By building this suite with Nasdaq, Invesco will enable clients to select the personalized combination of strategies that best suits their needs and time horizons.”

By providing different investment structures and slightly different exposures, the Invesco QQQ Innovation Suite acts as a “one stop shop” for the Nasdaq 100 companies, plus exposure to the next 100 up-and-coming innovators. This expansion will ultimately enable investors with the potential to tilt their investment exposure toward the attributes—including varying investment time horizons, share price or liquidity needs—they most value for their investment goals. 

The Invesco QQQ Innovation Suite will include four new offerings with different investment structures that complement QQQ: Invesco Nasdaq 100 ETF (QQQM); Invesco Nasdaq 100 Index Fund (IVNQX); Invesco Nasdaq 100 Growth Leaders Portfolio (QQQG); and Invesco Nasdaq Next Gen 100 ETF (QQQJ)

Short-term investors who prioritize liquidity could still find the attributes of QQQ most appropriate; however, longer-term “buy-and-hold” investors may be most focused on cost-savings and prefer the Invesco Nasdaq 100 ETF (QQQM), which costs 5 basis points (bps) less than QQQ, according to Invesco. Both longer- and shorter-term investors looking for exposure to the innovative mid-cap companies listed on the Nasdaq may opt for the Invesco Nasdaq Next Gen 100 ETF (QQQJ).

Invesco’s new suite also offers exposure to a set of investors who have not previously had direct access to the Nasdaq 100 as a means for exposure to large-cap growth companies. Certain advisers that prefer a mutual fund, such as providers of defined contribution investment only (DCIO) retirement plans can now generate core Nasdaq100 exposure from the Invesco Nasdaq 100 Index Fund (IVNQX) mutual fund. Those investors interested in a defined scheduled maturity date and more targeted fundamental exposure may look to the Invesco Nasdaq100 Growth Leaders Portfolio (QQQG), a unit investment trust. 

“The resilience of QQQ is a testament to the strength of the Nasdaq 100 Index, and to the enduring partnership of Invesco and Nasdaq,” says Sean Wasserman, vice president and head of index and advisory services for Nasdaq. “This further expands the Nasdaq 100 ecosystem in a way that brings a new level of access and innovation to the investing public.”

The Nasdaq 100 Index tracks the 100 largest non-financial companies listed on the Nasdaq Stock Exchange. The Invesco Nasdaq Next Gen 100 ETF (QQQJ) offers access to the “next 100” non-financial companies listed on the Nasdaq, outside of the Nasdaq 100 Index, offering a mid-cap alternative to the Nasdaq 100. 

Vanguard Adds Sprucegrove to Oversee Value Fund

Vanguard announced Sprucegrove Investment Management Ltd. will be added to the firm’s roster of active management expertise.

Effective as of October 12, Sprucegrove will join Lazard Asset Management LLC and ARGA Investment Management LP in overseeing the $9.8 billion Vanguard International Value Fund. Sprucegrove will manage the 35% of the fund previously overseen by Edinburgh Partners Limited. 

“Vanguard has decades of experience in selecting and partnering with active managers. We continuously search for world-class investment talent that brings a particular expertise and experience to specific mandates,” says Kaitlyn Caughlin, head of Vanguard Portfolio Review Department. “We welcome Sprucegrove as a valuable addition to our talented roster of investment management partners.” 

Sprucegrove is a Toronto-based boutique asset manager with $13.8 billion in assets under management. Founded in 1993, the employee-owned firm maintains an investment philosophy focused on constructing portfolios of quality companies at attractive valuations. Arjun Kumar, CFA, and Shirley Woo, CFA, will co-manage Sprucegrove’s portion of the fund.

As a result of Vanguard’s performance-based fee arrangements, the fund’s expense ratio is expected to increase 1 basis point (bps) to 0.38%.

Bloomberg Incorporates MSCI’s ESG Ratings

Bloomberg has announced that MSCI’s ESG Ratings are now available via the Bloomberg Terminal. Bloomberg Terminal users can access this MSCI data and use it alongside Bloomberg’s broader functionality across the terminal, complementing Bloomberg’s existing environmental, social and governance (ESG) data sets. 

With MSCI ESG Ratings, investors can measure a company’s resilience to long-term, financially relevant ESG risks. By using a rules-based methodology to identify industry leaders and laggards, MSCI rates companies on a “AAA to CCC” scale, according to their exposure to ESG risks and how well they manage those risks relative to peers. 

Investors can supplement their current research processes by incorporating MSCI’s ESG Ratings into their existing ecosystem of Bloomberg equity, fixed income and portfolio analysis tools. 

“With the shifting regulatory landscape and the demand for long-term sustainable returns, investors need the full picture of ESG data available to make informed decisions,” says Patricia Torres, global head of sustainable finance solutions at Bloomberg. “That is why Bloomberg is expanding our ESG data coverage to include third party data from providers like MSCI. We want our clients to have transparent and quality data that gives them a comprehensive view into the ESG landscape.”

“With over 40 years of experience, MSCI has been at the forefront of providing data, research and other tools to help enable ESG integration across the entire investment process,” says Eric Moen, head of ESG Products for MSCI ESG Research. “We are excited to offer sophisticated environmental, social and governance analysis through the Bloomberg Terminal to help investors gain the transparency they need to analyze and make better investment decisions.”

PFM Introduces SVDM Strategy

PFM has launched its Stable Value Diverse Manager (SVDM) strategy. 

This solution represents an important development given renewed efforts across the country to both emphasize diversity, equity and inclusion (DEI) and to promote minority- and women-owned businesses which, historically, have had limited opportunities in asset management.

PFM’s SVDM strategy is a turn-key multi-manager diversity solution offered to the defined contribution (DC) and stable value markets. While stable value has provided principal protection to DC plan participants for more than 35 years, it has not traditionally implemented solutions featuring diverse firms, except in rare situations, when directed by a plan sponsor. When implemented, it has tended to be in conjunction with a small number of large firms, rather than part of a broader strategy to bring emerging firms into the market.

The majority of the SVDM assets, targeted between 60% and 70%, will be managed by certified minority/women-owned business enterprises, while PFM will manage the remaining funds.

PFM has partnered with Garcia Hamilton & Associates L.P. and Xponance Inc. to implement a short-to-intermediate fixed income strategy that can be wrapped by one or more issuers. PFM will act as the manager responsible for the strategy, which may encompass either a client’s entire stable value fund or a sleeve within the fund. This strategy is currently available as a separately managed account solution.

The Markets October 15, 2020

Bringing Alternative Assets Into 401(k) Plans

The market volatility that ensured at the outset of the coronavirus pandemic has shown the importance of diversifying retirement plan portfolios.

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While the stock market has recovered since its sharp 30% downturn in March at the onset of the coronavirus pandemic in the U.S., plan sponsors are increasingly interested in helping their participants diversify their portfolios with alternative asset classes, retirement plan industry experts say.

According to TIAA, more than 45% of retirement plan participants have an inappropriate amount of risk in their portfolios. Since 75% of the flows into retirement plans with automatic enrollment go to the qualified default investment alternative (QDIA), it stands to reason that sponsors might consider selecting a target-date fund (TDF), custom TDF or managed account that allocates a portion of the investments to alternatives, says Tim Walsh, senior directing manager at TIAA. “With 75% of the flows going into the default, it would make sense for advisers to try to differentiate their service with QDIAs that invest a small portion in alternatives, including products with guarantees.

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“Advisers seem to be preparing for a low-rate environment extending at least through the middle of this decade, so the search for yield is on and they are looking to go out on the yield curve,” Walsh continues. That is why TDFs, custom TDFs or managed accounts that include dividend-paying equities, private equity-type solutions, direct real estate, real estate investment trusts (REITs), commodities and fixed annuities that pass the risk onto an insurance company might make more sense to sponsors and advisers right now, he says. “We are seeing some of these types of alternatives being included in an easy-to-use, packaged solution that is QDIA-compliant,” Walsh says, and when a plan does make these allocations part of its QDIA, it often conducts a re-enrollment to get its participants into this new option.

Tara Fung, chief revenue officer at AltoIRA, a self-directed custodian, notes that, earlier this year, the Department of Labor (DOL) gave guidance on including private equity investments in rettirement plans. For plan sponsors and advisers looking to offer alternatives to participants, Fung says a conservative approach would be to select a “TDF that invests a small portion of its assets in a sleeve that includes private equity and real estate.”

Another approach would be to offer participants a self-directed brokerage window to allow them to select from a wide variety of investments, but the success of that would be contingent on the participants’ investment knowledge, which is why brokerage windows in retirement plans are not common, Fung says.

For its part, TIAA offers RetirePlus, predefined models that are QDIA-eligible. They use the investment options from a plan’s investment menu and reallocate the investments to become more conservative each year as a participant draws nearer to retirement. Fixed and variable annuities can be included in the models.

Ryan Johnson, director of portfolio management and research at Buckingham Advisors, says his firm recommends including on retirement plan investment menus mutual funds or separately managed accounts that invest a portion of their assets in options strategies, convertible bonds and/or merger arbitrage. “Put together, these strategies can have some of the same characteristics as bonds by generating modest income, having a low correlation to stocks and having low overall volatility,” Johnson says. “Alternatives should be a small piece of a diversified portfolio that complements more traditional equity and fixed-income options. Hiring an experienced, specialized mutual fund manager makes sense in these niche areas.”

Johnson says the take-up date of alternative offerings varies among plans, and that “they are more likely found in larger plans with experienced plan sponsors.”

Patrick Hagen, national director at STRATA Trust, also says bringing more diversification into 401(k)s and other retirement plans could greatly benefit participants. “It reduces their exposure to any particular asset class,” Hagen says. “Simply put, if you spread your investments between different asset classes, including those that do not move with the public equity markets, the likelihood of a complete drop in value is reduced—and, yet, very few advisers put their clients into alternative investments.”

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