Fixed income, reimagined
LifePath participants’ asset class exposures already shift gradually over their lifecycle, moving from more aggressive and growth-oriented strategies during a participants’ younger years to more conservative ones as those participants approach and enter retirement. Younger participants typically have heavy exposure to growth-oriented assets such as equities, and relatively little exposure to more conservative assets such as bonds. Over time, those allocations shift, with fixed income taking on a more prominent role to protect older participants’ assets against market and economic risks.
The Bloomberg Barclays Aggregate Bond Index (“the Agg”) has long been the source of fixed income investments in the LifePath funds. The Agg has served participants well, delivering both growth opportunities and stability during uneven periods in the market.
Since the primary objective of the LifePath funds is higher lifetime consumption, we believed it was worth evaluating the potential benefits of adapting BlackRock’s fixed income approach in these funds.
By breaking the Agg into its component parts—including government bonds such as U.S. Treasuries, corporate bonds and securitized assets—we believe we can deliver a more precise asset allocation strategy to LifePath participants. This approach can emphasize the security provided by certain bonds such as Treasuries, as well as the unique growth characteristics of bonds such as corporate issues and securitized assets.
Our research suggests that this disaggregated fixed income approach can deliver to participants higher lifetime consumption than they might receive through allocation in a blunt fixed income instrument such as the Agg.
