Defined benefit outperforms defined contribution: PIMCO
Defined benefit (DB) default funds outperformed defined contribution (DC) default funds by over half a per cent per year over the past 15 years, with less volatility, according to global bond fund manager PIMCO .
Although they have fallen out of favour in Australia, DB funds have outperformed DC funds by 0.57 per cent per year for a cumulative total of 9.12 per cent over the past 15 years, according to PIMCO research paper 'Defined Contribution Funds: Target setting can pay off'.
This demonstrates the benefits of an investment approach with a clearly defined target, or minimum required internal rate of return, in achieving superior investment returns, said PIMCO account manager Sara Higgins.
"Research suggests that a focus on target setting for overall portfolio performance and risk outcomes leads to better performance. We need to think about the objective of a super fund to determine what constitutes a good outcome," she said.
A desired outcome could be the likelihood of meeting a replacement income target for a certain proportion of members, based on liability that lowers the level of risk as it approaches the target. "This adds to the discussion around the evolution of a dynamic target date or lifecycle approach," Higgins said.
AUTHOR
Chris Kennedy
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