Voya Target Retirement Fund Series

Transcription

1 Voya Target Retirement Fund Series The Target Date Choice to Help Keep Retirement Goals on Track Holistic Retirement Solution Sophisticated Glide Path Design Open Architecture Approach Blend of Active and Passive Styles Not FDIC Insured May Lose Value No Bank Guarantee INVESTMENT MANAGEMENT

2 Holistic Retirement Solution: Helping Participants Keep What They ve Earned Most participants seek two things from their retirement plan investments: the ability to maintain their lifestyle in retirement while not outliving the accumulated assets. Voya s Target Retirement Funds are designed to specifically balance the evolving risk-return profiles of participants as they age to maximize the probability of a successful retirement. The target date in the funds name is the approximate date when investors plan to start withdrawing their money. 1 Individuals investing in a target date fund within their workplace defined contribution (DC) retirement plan feel more confident about investing and meeting their retirement goals than those that don t use target date funds, according to survey results from Voya Investment Management. In the survey, Participant Preferences in Target Date Funds: Fresh Insights, 1 nearly two-thirds (63%) of target date fund (TDF) investors felt confident they would meet their retirement goals. In comparison, just under half (48%) of non-tdf investors felt confident about their retirement savings. Further reinforcing this confidence among TDF investors is the survey s finding that two-thirds (67%) felt they could turn their plan savings into an income stream at retirement, compared with just 46% of non-tdf investors. Overall, three-fourths (75%) of plan participants using TDFs reported that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions (75%), and helped them feel more assured they could meet their retirement income goals (72%). One Solution for the Different Stages of a Participant s Savings Life Life Stage Young Savers (<40) Mid-Career (40-55) Nearing Retirement (55-65) In Retirement (>65) Key Objective Maximize wealth accumulation Reduce investment risk as savings grow Reduce volatility to preserve assets Protect assets and generate income that lasts as long as one lives Key Risks Not saving enough Volatility or low returns Significant capital losses and inflation Income needs outstrip assets Voya Target Retirement Funds Maximize equity exposures to give investors a head start on accumulating for retirement Slowly and steadily reduce equity exposure over time taking into account market conditions Continue to trim exposure to risky assets such that most conservative allocation occurs at retirement Diversify and actively manage asset mixes to lead to potentially greater income stability 1 Voya Investment Management, Participant Preferences in Target Date Funds: Fresh Insights, January Voya Investment Management conducted an online survey of 1,005 employer-sponsored retirement plan participants in September Of the respondents, 502 invested in a TDF within their plan while 503 did not. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older, and were the primary/joint financial decision maker for their account. The survey included plans of all employer sizes. The data has been weighted by household income, age and gender, among other variables, to more closely represent the demographics of the general retirement plan population. To prevent bias, Voya Investment Management was not identified as the sponsor of this research. 2

3 Voya Target Retirement Funds Help Participants Overcome Common Obstacles to Successful Retirement Investing Retirement investors encounter a number of behavioral hurdles that threaten the success of an investment program. These include: Decision Paralysis. Faced with what appears to be a never-ending series of investment decisions, many plan participants choose the easiest course of action by doing nothing the worst option of all. Complacency. After an initial allocation to their retirement plan, participants often neglect their portfolios, which over time can result in asset allocations ill-suited to their changing risk profile. Emotional Influence. Research shows that participants despite their best intentions tend to get into and out of the market at very inopportune times based on emotion or by following the herd. Voya Target Retirement Funds are designed to help participants overcome these obstacles, relieving them of the guesswork and anxiety that can accompany retirement investing. The funds offer a solution that is: Simple and Effective. Voya Target Retirement Funds are designed to simplify retirement investing, with an all-in-one, fully managed portfolio that evolves with investors needs. Actively Managed. Our team of experienced portfolio managers automatically adjusts the portfolios strategic exposures as participants move through their careers, including tactical adjustments to manage risks in changing in market conditions. Diversified. Voya chooses from among the top managers across asset classes and styles to create diversified portfolios based on a participant s retirement date and risk profile, utilizing both active and passive management styles. Disciplined Portfolio Construction Glide Path Research and Construction Glide paths are constructed to potentially maximize risk-adjusted replacement income in retirement Average Participant s risk tolerance, expectations and actual behaviors are taken into account Active Asset Allocation Forward looking long-term forecasts are made to construct portfolios that may outperform over the next market cycle The portfolios are adjusted based on shorter term market opportunities or risks Manager Selection and Portfolio Construction Funds are chosen to represent the asset classes and styles within an overall portfolio Open architecture 2 platform allows for access to both active and passive investment managers from across the industry Portfolio Implementation and Risk Management Investment decisions are translated into the portfolios in a cost effective and consistent manner Disciplined rebalancing process designed to control risks and support investment performance 2 Open Architecture target date funds invest in multiple investment managers including both in-house proprietary funds as well as funds managed by other firms to gain exposure to a range of asset classes. 3

4 Sophisticated Glide Path Design: Maximizing Accumulation Potential in the Early Years, Protecting Wealth in the Later Years In general, younger participants can afford to take on more investment risk in exchange for greater potential returns. Of course, the opposite is also true; as participants approach retirement, risk profi les must grow more conservative in order to protect the accumulated wealth. The manner in which a portfolio adjusts to this change in risk tolerance over time is known as its glide path and is a key differentiating feature among the many available target date funds and a primary determinant of their returns and volatility. Voya Target Retirement Funds maximize asset accumulation in the early years of participants careers, taking aggressive equity positions. The portfolios shift emphasis to asset protection in later years, reducing risk and ultimately reaching their most conservative equity allocation of 35 at retirement to help investors hold onto what they have accumulated in a lifetime of saving. A Portfolio that Adjusts as Your Career Progresses Percentage of Portfolio Early Career Mid Career Pre-Retirement Retirement 100% Fixed Income Aggressive equity allocation early in career Reduction of equities aligned with changing risk profile Accelerated risk Conservative allocation reduction in critical Equity in retirement pre-retirement years Retirement Years Before Retirement Date Years After Retirement Source: Voya Investment Management This chart is for illustrative purposes only and may not refl ect the current allocations of the Voya Target Retirement Funds. This illustration is intended to show how the Voya Target Retirement Funds transition over time. The Importance of a Conservative Allocation Near Retirement Impact of a 20 Loss at Different Ages Ending Value at Retirement $800,000 $600,000 $400,000 $200,000 $0 $773,788 20% Loss at Age 25 Source: Voya Investment Management $678,313 20% Loss at Age 40 $600,826 20% Loss at Age 60 As retirement approaches, the ability of a participant s portfolio to withstand market shocks dramatically diminishes, as the balances are greater and the time frame in which to recover from losses is shorter. As the chart to the left demonstrates, a 20 loss at age 25 can be recovered a lot easier than the same loss at age 60. This hypothetical example is for illustrative purposes only. The chart assumes a 40-year career beginning at age 25 with a salary of $35,000, annual wage growth of 3, a contribution rate of 9 and an average annual return of 6 (except in the year of the 20 loss). 4

5 Portfolio Allocations for Each Stage of Retirement Planning Effective glide path design entails more than just adjusting a portfolio s weighting to equities and fixed income. To help optimize asset allocation throughout participant life cycles, we drill down into sub-asset classes to identify those investments best suited for participant needs at that point in the life cycle. We believe our investments across a broad range of risk premiums can potentially increase risk-adjusted returns over the long term and enhance our ability to manage varying risks. A properly diversified portfolio can dampen the effects of this asset class performance volatility, which is critical in the context of a target date fund built to accumulate and preserve assets over more than 40 years. At the beginning of participants careers, the Voya Target Retirement Funds not only take on an outsized allocation to equities, they also invest more in riskier equity classes such as U.S. small cap and emerging markets; despite the greater potential for short-term volatility, these investments are likely to earn a greater market risk premium given the sufficiently long time horizon. In contrast, as participants move closer to retirement, the need to preserve wealth becomes more important than accumulating wealth. We address this concern not only by reducing equity exposure but also by shifting assets into less volatile asset classes while also emphasizing income-producing asset classes like high yield and other credit, as well as shorter-term inflation hedges utilizing REITs, TIPS, senior loans and short-duration bonds. Less Risk Through Broader Diversification 100% Percentage of Portfolio Fixed Income 20 Equity Equity U.S. Large Cap U.S. Mid Cap U.S. Small Cap International Years Before Retirement Emerging Markets U.S. Real Estate Global Real Estate Commodities Fixed Income Core Fixed Income High Yield Senior Debt International Bonds Retirement Date TIPS Short Duration After Retirement There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. 5

6 Open Architecture 1 Approach: Employing World Class Managers in One Retirement Solution Plan sponsors and consultants recognize than an investment menu that offers a diversified roster of investment managers including both active and passive styles, can help better serve their participants and meet their fiduciary responsibility. Voya Target Retirement Funds are constructed with that in mind, offering access to an extensive universe of underlying funds managed by leading investment managers. This open-architecture approach helps us choose world class managers and gives us the flexibility to leverage specialized expertise in many different investment categories, utilizing both active and passive management styles. Advantages of an Open Architecture Approach: Access to Top Managers Flexibilty to add and replace managers over time, since many factors style headwinds, firmwide issues, manager turnover, etc. can impact a manager s ability to outperform over long periods and different market conditions. Diversification Across Managers Reduces Single Manager Risk The benefits of diversification extend well beyond asset classes, geographies or styles and should also include diversification across the investment managers. No Capacity Constraints Ability to add additional managers when the size of an underlying fund reaches the point where executing transactions begins to influence the prices at which it can buy or sell. Closed architecture strategies are particularly vulnerable to such capacity issues, as they may have no other investment options when an underlying strategy grows too large. Easy Addition of New Asset Classes Closed architecture target date strategies are unlikely to have strategies available in all asset classes, especially in more specialized areas. An open architecture approach allows us to invest in any asset class or style that we believe will enhance our risk-adjusted returns. 1 Open Architecture target date funds invest in multiple investment managers including both in-house proprietary funds as well as funds managed by other firms to gain exposure to a range of asset classes. 6

7 Voya Investment Management Is a Leader in Managing the Managers Drawing on years of experience and an ongoing commitment to reliable investing, Voya Investment Management has the resources and expertise to help long-term investors achieve strong investment results. Voya Investment Management has been selecting and monitoring managers in asset allocation portfolios for more than 26 years. Our Multi-Asset Strategies and Solutions (MASS) team applies a process that incorporates numerous checks and balances to help maximize market opportunities while minimizing unnecessary risk. The MASS team consists of over 25 dedicated investment professionals employing a rigorous investment process for the Voya Target Retirement Funds that combines quantitative and fundamental analysis, including macroeconomic forecasting, proprietary optimization techniques and multiple layers of risk management. The team s experience spans domestic and international markets as well as non-traditional asset classes such as commodities, real estate and senior debt. Within MASS, there are seven investment professionals responsible for selecting and monitoring best-in-class managers for each asset class to create diversifi ed investment options for participants. This Manager Research and Selection Team has over 10 years of experience working within an open architecture target date framework, and consists of career research analysts who average more than 20 years of industry experience. Team members are assigned specifi c asset class responsibilities and are supported by three quantitative analysts. In addition, a mix of active and passive strategies are utilized to draw on the alpha generating potential of proven institutional asset managers while delivering a robust product at an attractive fee level. When determining the active and passive mix for our target date fund for each asset class, we analyze: Alpha opportunity set within each asset class Historically, how has active management performed relative to the passive alternative after fees? Do certain market environments favor active vs. passive in a particular asset class? Up/down capture management across the glide path Do active or passive managers tend to provide better upside or downside capture ratios and, if so, how can we take advantage of that within different target date vintages? Liquidity management Does the active or passive vehicle offer enough liquidity? Fee constraints What are the overall fee constraints of the target date suite? Availability and effectiveness of passive replication strategies How effective is the passive vehicle at replicating the benchmark returns (high or low tracking error?) and at what cost? Credit exposure management How effective are the fi xed income managers at adjusting their credit exposure throughout the business cycle? Manager Due Diligence and Selection Process Define Search Criteria Qualitative Quantitative Fundamental Review 1. Investment Needs Downside Protection, Diversifi cation, Upside Capture, etc. 2. Portfolio Structure Single vs. Multi-Manager Funds 1. Conviction Scoring System Transparency of Firm, People, and Process Investment Strategy 1. Benchmark and Peer Comparison 2. Factor Attribution Factor risk diversifi cation 3. Stability and Persistency Tests Stable and persistent manager alpha 1. Search Criteria Satisfied Downside Protection, Diversifi cation, Upside Capture, etc. 2. Assess Fit within Portfolio Holistic Perspective Alpha Diversifi cation Optimization 7

8 Voya Investment Management Equity Fixed Income Multi-Asset Strategies & Solutions Voya Investment Management is the asset management arm of Voya Financial, a leader in retirement services and investing. Our investment platform has been carefully built to help meet the long-term needs and goals of our clients, supported by more than 200 investment professionals. Our deep understanding of managing risk exposure and capturing unrecognized investment potential through intense fundamental research and skilled portfolio construction has delivered a consistency of results across continuously evolving market cycles. Today, we are proud to manage more than $230 billion in assets for investors. 1 79% of our assets outperformed their benchmark or peer median on a 5-year basis. 2 84% of the time our portfolios outperformed their benchmark on a rolling 3-year basis. 3 88% of the time our portfolios outperformed their benchmark on a rolling 5-year basis. 3 Past performance does not guarantee future results. 1 As of 09/30/17, Voya IM assets of $230 billion include proprietary insurance general account assets of $91 billion calculated on a market value basis. Voya IM assets, as reported in Voya Financial, Inc. SEC fi lings, include general account assets valued on a statutory book value basis and total approximately $222 billion. 2 Metrics presented use pre-determined criteria to measure each individual investment product based on its ability to either A) rank above the median of its peer category; or B) outperform its benchmark index on a gross-of-fees basis. Generally speaking, the results for unconstrained, fully-active investment products were based on relevant peer category rankings while those of enhanced index, rules-based, risk-constrained, or client-specifi c investment products were based on benchmark-relative performance. Metrics are calculated on an annualized basis and includes mutual funds as well as pooled and separately-managed institutional portfolios that fall within our traditional (long-only) commercial book of business that remain open as of 09/30/17. If terminated and other accounts had been included, results may have differed from that shown. Source of performance returns and peer medians is Voya Investment Management but is based in part on data from Morningstar (mutual funds) and evestment (institutional composites). Further detailed information regarding these calculations is available upon request. 3 Metrics are based on observations of rolling 3-year or 5-year annualized returns over the last 30 months, calculated on an annualized, gross-of-fees basis, and includes mutual funds as well as pooled and separately-managed institutional portfolios that fall within our traditional long-only commercial book of business that remain open as of 09/30/17. If terminated and other accounts had been included, results may have differed from that shown. Source of performance returns is Voya Investment Management, and further detailed information regarding these calculations is available upon request. A reliable partner committed to reliable investing For more information on Voya Target Retirement Fund Series, contact your Financial Professional or visit Principal Risks There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The target date is the approximate date when an investor plans to start withdrawing their money. When their target date is reached, they may have more or less than the original amount invested. For each target-date portfolio, until the day prior to its target date, the portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each portfolio s designated target year. On the target date, the portfolio will seek to provide a combination of total return and stability of principal. Stocks are more volatile than bonds, and portfolios with a higher concentration of stocks are more likely to experience greater fluctuations in value than portfolios with a higher concentration in bonds. Foreign stocks and small- and mid-cap stocks may be more volatile than large-cap stocks. Investing in bonds also, entails credit risk and interest rate risk. Generally investors with longer timeframes can consider assuming more risk in their investment portfolio. As with any portfolio, you could lose money on your investment in a Voya Target Retirement Fund. Although asset allocation seeks to optimize returns given various levels of risk tolerance, you still may lose money and experience volatility. Market and asset class performance and the assumptions used form the asset allocations for the Voya Target Retirement Fund. There is risk that you could achieve better returns in an underlying portfolio or other portfolios representing a single asset class than in the Voya Target Retirement Fund. Important factors to consider when planning for retirement include your expected expenses, sources of income, and available assets. Before investing in the Voya Target Retirement Fund, weigh your objectives, time horizon, and risk tolerance. The Voya Target Retirement Fund invests in many underlying portfolios which are exposed to the risks of different areas of the market. The higher a portfolio s allocation to stocks, the greater the risk. Diversification cannot assure a profit or protect against loss in a declining market. An investor should consider the investment objectives, risks, charges and expenses of the Fund(s) carefully before investing. For a free copy of the Fund s prospectus, or summary prospectus, which contains this and other information, visit us at or call (800) Please read all materials carefully before investing Voya Investments Distributor, LLC 230 Park Ave, New York, NY All rights reserved. (800) Individual Investors (800) Investment Professionals Not FDIC Insured May Lose Value No Bank Guarantee BSIG-TARGETRET IM