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A glide path approach to equity risk in emerging markets
Rich Lang
Multi-Asset Investment Director

 


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.

Key takeaways:

  • Characteristics of emerging markets have changed, with potentially increased risk

  • Emerging and developed markets assets are increasingly moving in unison due to greater financial and economic integration

  • Given increased risks, our Series uses an age-appropriate approach to emerging markets equity exposure
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Rich Lang is a multi-asset investment director at Capital Group. He has 30 years of investment experience (as of 12/31/2023), all with Capital. He holds master's and bachelor's degrees from Loyola Marymount University.

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Target Date
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
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Although the target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors' retirement goals will be met. Investment professionals manage the portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the target date gets closer. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals. Investment professionals continue to manage each portfolio for approximately 30 years after it reaches its target date.
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