Many defined contribution (DC) plans are still heavily tilted toward domestic and international equity strategies, which are geographically constrained and increasingly correlated. These strategies provide limited diversification, and may not be sufficient to round out a plan’s menu of investment choices offered to participants.
Historical data show that global strategies have provided participants with greater diversification. Additionally, top-quartile global managers have had a better alpha-generation track record—in both magnitude and consistency—than their international and domestic peers over the past three, five and 10 years.1
Many participants admit that limited knowledge about overseas investing is a major factor driving them to favor domestic equities. Plan sponsors may consider educational initiatives to promote an awareness and understanding of the potential benefits of global strategies to participants.2
Here we examine two challenges DC sponsors face. First, they must rethink how to achieve effective diversification within their plan lineup while still maintaining a streamlined offering. Second, DC plan sponsors need to counter participants’ bias toward domestic investments by educating them about the benefits of global strategies. In so doing, they could help participants achieve greater diversification and higher returns for their retirement savings.
Read the full paper on incorporating global strategies in DC plans.
1 Source: FactSet, September 30, 2014.↩
2 OppenheimerFunds’ proprietary survey of 1,000 401(k) participants, conducted in 2012.↩
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.