Retirement plan investment menu design depends on two key decisions:
In this paper, our investment analysts delve into how Multnomah Group conducts the investment manager due diligence that underlies our actively-managed fund recommendations. We cover how we construct actively-managed investment menus and evaluate investment management teams, philosophy and process, and portfolio construction and risk controls.
Tina and Caryn begin with Multnomah Group's philosophy of investment menu design, which incorporates investment “tiers.” The tiered approach is easy to communicate to participants and can assist them in building the right portfolio for their degree of investment knowledge. The first tier of the investment menu is typically a suite of target date funds (in many cases the plan’s qualified default investment alternative “QDIA”). This tier is designed for participants who want to invest for retirement but prefer to leave the asset allocation decisions to professional investment managers. The second tier provides a small selection of broad asset class investment products, including a stable principal investment option, fixed income, U.S. and international equities. Frequently, the investment products within this tier are broad-based index funds because they give participants the basic building blocks for a diversified portfolio at a low investment expense. The third tier is an extended set of options that provide participants choices among narrower asset class and investment style categories. Usually, this tier is populated with a selection of actively-managed and style-pure mutual funds. It is the focus of this paper.[i]
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[i] For the purpose of this paper, we will exclude asset allocation funds – including target date funds and index funds due to their differing considerations in due diligence and menu construction needs. For more information on target date fund selection, please see our webinar on the topic.
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Tina and Caryn authored a blog miniseries on this topic, click the links below to read the posts.
Investment Manager Selection for Actively-Managed Funds Episode 1: Introduction
Investment Manager Selection for Actively-Managed Funds Episode 2: Philosophy & Process
Investment Manager Selection for Actively-Managed Funds Episode 3: Team Structure
Investment Manager Selection for Actively-Managed Funds Episode 4: Portfolio Construction & Risk