Emerging Markets Opportunities in DC Plans | American Funds

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Defined Contribution Insights

May 2013

Emerging Markets Opportunities in DC Plans

In today’s generally low-growth environment, we believe it is important that participants in defined contribution (DC) plans have access to what could be a meaningful source of return: emerging markets. In the 10 years through 2011, emerging markets’ GDP grew at an average annual rate of 6.5%, compared to just 1.6% for advanced economies. Although risks still exist, several factors make emerging markets attractive today for many DC plans. These include the countries’ favorable demographics and rising incomes, as well as their strong fiscal balances and current account surpluses. These trends have led to an improvement in credit quality. Emerging markets strategies are now commonly used in defined benefit plans. Isn’t it time for DC participants to have access to these opportunities? We believe that plan sponsors should consider including emerging markets in DC lineups as a standalone menu option or component of a custom target date fund. At Capital, we encourage sponsors to think broadly about emerging markets exposure, focusing not just on pure equity and debt strategies but also on strategies that combine both asset classes or that include a mix of developed- and developing-market companies that do substantial business in emerging markets.

Emerging Markets: Key Driver of Global Growth

Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP. Source: International Monetary Fund, World Economic Outlook Database, October 2012

Emerging Markets: an Easy Fit in DC Lineups

At Capital, we offer a suite of emerging markets strategies designed to meet participants’ diverse needs and risk-return preferences:

  • Dedicated emerging markets strategies cater to investors who want maximum and deep exposure to the emerging markets and are willing to tolerate the associated risks including volatility.
  • Multiasset-class strategies can be an option for investors who would like dedicated emerging markets exposure but with lower volatility than an equity-only strategy and the flexibility of moving between debt and equity.
  • Global strategies can be attractive to investors who prefer emerging markets exposure within a broadly diversified global strategy that includes both developed and emerging countries.
  • Emerging markets strategies can be incorporated into a DC plan through target date funds or as a Qualified Default Investment Alternative (Tier 1), or as self-directed menu options (Tier 2).

Emerging Markets at Capital

A pioneer in emerging markets investing, Capital launched the world’s first emerging markets equity fund in 1986. We offer a full suite of strategies across the risk-return spectrum, backed by an integrated, global research network. Our equity, fixed-income and macroeconomic analysts on both the developed- and emerging-market sides of the organization closely collaborate to gain a global, holistic perspective on industries and companies.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.