Morningstar announced the winners of its Awards for Investing Excellence during the research firm's annual investment conference held recently in Chicago: Dan Fuss of Loomis Sayles was named Outstanding Portfolio Manager.
"Our 2019 winners have been great drivers of investor success," said Laura Pavlenko Lutton, Morningstar's director of manager research, North America. "The managers and firm selected all have one thing in common: they are investing and operating for the long haul by maintaining value-oriented strategies that stay true to client interests instead of their own."
A pioneer in the area, Fuss was first in the benchmark-agnostic, multi-sector approach to fixed income, which has defined its flagship Loomis Sayles Bond (LSBRX) since 1991, according to the research firm. He has demonstrated a "value-driven, often contrarian, and aggressive strategy that continues to have an impressive long-term record for the fund and its siblings," it said.
Other award winners were the Vanguard Group, recognized for Exemplary Stewardship, and James Marchetti noted for Rising Talent as head of Primecap's Odyssey Aggressive Growth Fund (POAGX).
Retirement Focus Advisors helping clients plan for retirement should focus both on accumulating assets and on projected liabilities, according to David Blanchett, head of retirement research at Morningstar. "Think about assets and liabilities separately," said Blanchett, during the Chicago gathering. "What will assets earn and what are the liabilities, spending needs, over 30 to 40 years."
The traditional 4% withdrawal rule from retirement funds may not be appropriate for future retirees, said Blanchett, noting that the rule is based on historical returns for U.S. stock and bond markets, not future return projections, and assumes a constant income increased for inflation over 30 years, which is "not reality."
U.S. large caps, for example, are not likely to return the 10% average annual gains that have prevailed since 1926 and the 10-year Treasury is unlikely to maintain its historical 5.5% annual yield.
"We have to adjust our expectations," he said. A reasonable annual return for U.S. large caps over the next 10 years is 0.95%; for international equities, Morningstar's projection is 5.4% annually, while for small caps it is 2.88%.
Retirees most affected by these relatively low expected returns will be those closest to retirement, either five years ahead of or five years into retirement, according to Blanchett. "You have to incorporate lower returns" in retirement plans today. "The 4% rule is not as safe as the historical data shows."
On the spending side in retirement planning — the liabilities — he suggested that advisors focus on realistic expectations. The assumption that investors will spend more as they age, above the inflation rate, is wrong.
"Retiree spending doesn't rise above inflation because spending evolves," Blanchett said. They will spend more on health care as they age, but less on travel and other activities and items as they slow down, including wealthy retirees as well. "The average retiree spending $100,000 a year at 65 spends $75,000 by age 95," he explained.
Another major consideration in retirement planning is longevity risk, whether retirees will outlive their assets. Here, too, Blanchett warned against using conventional analysis of average life expectancy, which have been rising: "Your clients are not average. Consider the unique risks today for wealthy Americans."
Males in the top 1% today will live to about 90 on average vs 80 for the remaining 99%. Plus, longevity for the top 50% of earners is rising much faster than the longevity of the bottom half, he explained. "Where are your clients on this spectrum?"
As for guaranteed income, Blanchett said only annuities can provide that, with Social Security being the best example. He also reminded the audience that in the worst case scenario, when retirees appear to be running out of money, they can usually adjust their discretionary spending.
Fixed-Income, Pimco Update On stage at the Morningstar conference, Pimco CEO Emmanuel "Manny" Roman was unapologetic for focusing on fixed income and fixed income only. "We do fixed income at a fair price, and we do it well," he said. "It's a unique strategy that focuses on one side of the market."
