Emerging markets equities, despite their volatility, have provided compelling diversification and appreciation opportunities, which means they have been a critical holding within many gliding and static multi-asset portfolios.
But their characteristics have shifted in recent years. An approach that relies on historical correlations, risk-return dynamics and index compositions is likely to miss what amounts to a regime change within the entire asset class. With the American Funds Target Date Retirement Series®, we take a distinctive approach that treats emerging markets assets as risk-return magnifiers, which aren’t appropriate for every investor at every stage of life.
But the target date industry overall continues to collectively maintain emerging markets exposure across the glide path, which we believe could result in poor outcomes, particularly for older participants, who are the most sensitive to downside risk.
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