Products February 22, 2018

Investment Products and Services Launches

Putnam Announces New Pricing for TDFs; First Trust to Launch AI and Robotics ETF; and Vanguard Launches Factor-Based ETFs.

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Putnam Investments announced the availability of a new highly competitive pricing option on its Putnam Retirement Advantage Funds, a series of 10 target-date funds (TDFs) designed for the retirement marketplace.

Putnam class X shares have a management fee of 0.35% and are available to defined contribution (DC) plans that have a minimum of five million dollars invested in Putnam Retirement Advantage Funds. The new class X shares symbolize the 10-year anniversary of the suite, which has experienced noteworthy growth in recent years. 

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“We regularly evaluate our product offerings in an ongoing effort to provide retirement plans with an exceptional slate of actively managed investment strategies at competitive prices,” says Steven P. McKay, head of Defined Contribution Investment Only (DCIO) at Putnam Investments. “The addition of the new share class for our Putnam Retirement Advantages series underscores our commitment to deliver performance and value to plan sponsors—to ultimately help their participants meet their retirement goals.”

Putnam Retirement Advantage Funds are designed for plan participants who want the risk/return profile of their asset allocation glide path to reflect their projected retirement date. The funds are actively managed by Putnam’s Global Asset Allocation team, a highly-experienced group with a strong long-term track record of pursuing multi-asset investment strategies.

Putnam Retirement Advantage Funds, which currently have $3.8 billion in assets under management, are collective investment trusts, a pooled vehicle structure that can help to keep costs competitive by providing lower operational expenses and enhanced fee flexibility.

“Putnam is laser-focused on addressing the issues most important to plan sponsors and consultants, including fees, transparency and performance. We see our role as a critical piece of the equation, as we work closely with retirement plan sponsors and their advisers in providing an array of effective and innovative traditional and non-traditional investment strategies for participants,” adds McKay.

First Trust to Launch AI and Robotics ETF

First Trust Advisors  announced that it expects to launch a new index-based exchange-traded fund (ETF), the First Trust Nasdaq Artificial Intelligence and Robotics ETF on February 22.

The fund seeks investment results that correspond generally to the price and yield, before the fund’s fees and expenses, of an index called the Nasdaq CTA Artificial Intelligence and Robotics Index. The index, which is developed by Nasdaq and the Consumer Technology Association (CTA), is designed to track the performance of companies engaged in artificial intelligence (AI), robotics and automation.

AI allows machines to complete various “human” tasks, enabling robots to solve problems and interact with their environments. “It is clear that the growing advances in AI and Robotics, while still in early days, are increasing the rate and impact of change,” says Dave Gedeon, vice president and head of Product Development for Nasdaq’s Global Indexes. “The Nasdaq CTA Artificial Intelligence and Robotics Index is a new way to benchmark the performance of the companies leading the charge in this dynamic sector.”

Vanguard Launches Factor-Based ETFs

Vanguard launched six new factor-based ETFs—the firm’s first actively managed ETFs in the U.S.—and one factor-based mutual fund. 

Vanguard’s five single factor funds seek to achieve specific risk or return objectives through targeted factor exposures—minimum volatility, value, momentum, liquidity, and quality—and will have an estimated expense ratio of 0.13%. The sixth ETF and mutual fund follows a multi-factor approach and has an estimated expense ratio of 0.18%.

“The newly launched factor funds further broaden our active equity lineup and represent a differentiated approach – disciplined, rules-based, targeted exposure to factors – along with Vanguard’s low costs,” says Vanguard CEO Tim Buckley. “The funds are aimed primarily at financial advisers and institutional investors, who we believe understand the risks of potential underperformance and can effectively incorporate factor funds into their portfolios.”

The new funds will be managed by Vanguard Quantitative Equity Group (QEG).

To complement the launch of the funds, Vanguard Financial Advisor Services (FAS) introduced an Education Center—a website featuring product information, research, and education on factor funds and factor investing. The center features Vanguard’s latest research on factor investing, including Equity factor-based investing: A practitioner’s guide, How to use factor-based investing in client portfolios, and Drawing systematic value from the equity liquidity premium.

Compliance February 22, 2018

California Lawmaker Pushes for State DC Plan Option

A new bill in the California legislature would offer new state employees a 401(k)-style plan in which their own contributions would be fully matched by the state.

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California State Senator Steve Glazer, who serves the state’s 7th senate district, introduced a bill earlier this month to allow new state employees the option of opting out of pension plan benefits and instead choose a “self-directed and portable retirement plan.”

Glazer’s bill, dubbed “SB 1149,” would, he says, provide for matching contributions “at the same level the state now contributes to the California Public Employees Retirement System defined benefit plan.”

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As Glazer puts it, “the big difference in our approach is that workers who leave state employment would be able to take with them the entire balance in their retirement plan—including both the employee and employer contributions and investment gains. They could then invest that money with their new employer or on their own.”

Under current law, employees who leave state service before retirement can receive refunds of their own contributions, plus interest.

“This pension reform idea would be good for employees and provide a more stable fiscal foundation for the state,” Glazer says. “This new retirement plan would be especially attractive to Millennials who do not intend to work for the state their entire lives. The change could also make the state’s pension obligations more predictable because the state would no longer be at risk of an unfunded liability for employees who choose the new option. Currently, the unfunded liability for CalPERS is estimated at about $140 billion. This is the projected cost of pensions that the state has promised employees but not fully funded. The system only has about 68% of the money needed to fulfill all of its obligations.”

It should be stated that many advocates and lobbyists disagree with the assessment that moving away from defined benefit plans is helpful for a state’s or municipality’s taxpayers and economy. For example, the National Institute on Retirement Security (NIRS) recently studied the case of Palm Beach, Florida, which it says offers “an important cautionary tale on the detrimental impacts of switching public employees from DB pensions to DC accounts.” That research argues in stark terms that the peripheral impacts of ceasing to offer a pension program for state employees are quite dramatic and unpredictable—completely outstripping any savings realized by the pension plan.

Glazer rejects that assessment and instead emphasizes the simple fact that most employees do not spend their entire career in state employment. Glazer argues younger employees who work as long as 15 years for the state would still likely be better off with their own retirement plan than they would be if they left their money with the traditional pension plan and claimed a pension at their full retirement age.

Under Glazer’s plan, the state Human Resources Department would administer and oversee the defined contribution-type program—and they would take explicit steps to help employees address investment risk and make appropriate investment decisions for different stages in their working career.

“The state already manages a similar program for employees who invest their own money in the Savings Plus plan,” Glazer notes.

Read more about the proposal here.

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