LifePath® funds seeks to smooth the ride for investors

Mar 5, 2021
  • BlackRock

LifePath seeks to provide a diversified asset allocation solution that adjusts over time to appropriately balance growing investments when young and a more conservative risk allocation when approaching retirement. Though the COVID-19 pandemic sent markets plunging in the first quarter of 2020, the LifePath funds weathered the volatility and finished the year with strong returns.

Nick Nefouse, Head of Retirement Solutions and Global Head of LifePath, and Partha Mamidipudi, LifePath’s Head of Human Capital Research, identify three key areas of interest for LifePath's 2020 performance and discuss the team’s priorities moving forward.

What happened in 2020?

LifePath had a very strong 2020. Three developments are especially noteworthy: equity markets’ remarkable recovery after steep first-quarter losses; the strong performance of high-quality fixed income; and the discipline younger investors showed as they stayed invested through the market downturn.

Worries about the pandemic’s impact on the economy and the markets caused major losses across risk assets at the beginning of the year. Our funds declined as well, but then benefited as equities rallied in the second quarter and continued their upward trend over the rest of the year. Large cap technology stocks drove the early stages of the rebound. Gains broadened toward the end of the year, as government stimulus and positive news about vaccine development drove a rotation into small cap and emerging markets stocks.

High-quality fixed income assets performed very well during the first quarter of 2020—to be expected in a down equity market. In a more surprising development, the trend continued through the rest of the year as stocks recovered. Additionally, Treasury inflation-protected securities (TIPS) posted very strong returns, as economists late in the year began anticipating a possible rise in inflation.

We monitor our funds' inflows and outflows very closely. Fund flows performed much as we would have predicted in 2020. Young investors had very low outflows through the market’s first-quarter downturn, a trend we found encouraging but not surprising—young investors tend not to trade much.

We saw more outflows among older investors. Their behavior is consistent with our understanding that investors closer to retirement tend to be more risk-averse. But it’s noteworthy that the outflows came even as the LifePath funds held up well relative to many peers through the market’s decline.

Planning for prosperity and dignity

The market selloff in the early days of the pandemic underscored the importance of well-diversified portfolios, including fixed-income allocations appropriate for the investor’s life stage.  One way we hope to improve outcomes is by varying the exposure to core fixed-income sectors over the investor’s lifetime, allowing us to efficiently harness term and credit premiums. We're also looking at ways to add return and improve diversification, potentially through allocations to private markets and alternatives.

Meanwhile, we're working to build even stronger strategies for decumulation and spending in retirement. Technology developments will help us further personalize retirement income investment solutions.

As we move into 2021, the fundamental goals of LifePath remain the same: to provide a prosperous and dignified retirement experience to all of our participants.

BlackRock LifePath

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