AllianceBernstein Addresses Inflation Risk in US Target-Date Funds

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Apr 05, 2011, 12:53 ET

NEW YORK, April 5, 2011 /PRNewswire/ -- AllianceBernstein today announced the release of a new white paper that discusses the critical risk inflation poses when one invests for retirement and how target-date funds may be able to enhance inflation protection with an allocation to real assets such as commodity stocks, commodity futures and securitized real estate.

"Inflation is a key risk to address when investing for one's retirement since it can rapidly erode the purchasing power of a portfolio," explains Thomas J. Fontaine, Head of AllianceBernstein Defined Contribution Investments (ABDC). "Given that target-date funds have become the default investment vehicle in many defined contribution plans, it's critical these funds provide plan participants with sufficient protection again inflation."

In this paper, Enhancing US Target-Date Funds: Addressing Inflation Risk, AllianceBernstein answers some key questions:

How can inflation risk be hedged and what types of hedges are available?
What are the key factors that determine the efficacy of an inflation hedge?
How should inflation protection be incorporated into a target-date fund?

"The need for inflation protection varies depending on the assets and liabilities of an investor throughout the different stages of life," says Christopher Nikolich, Head of US Research and Investment Design for ABDC. "Target-date retirement funds should seek reliable and cost-effective inflation protection with an allocation to real assets that combine real estate investment trusts (REITs), commodity stocks and commodity futures, in addition to other inflation-sensitive assets such as inflation-linked bonds."

In early 2011, AllianceBernstein further enhanced its Retirement Strategies target-date mutual funds by broadening its allocation to global REIT to include exposure to additional inflation-sensitive asset classes, specifically, commodity stocks and commodity futures. This followed other innovations that were implemented in 2010 including the addition of a volatility management component designed to reduce the market risk of the funds during periods of extreme volatility.

"Our clients—in both our Retirement Strategies target-date mutual funds and our Customized Retirement Strategies service which provides custom target-date portfolios for large defined contribution plans—have expressed a growing interest in inflation risk," according to Fontaine. "We believe our new research paper and the corresponding enhancements to our target-date services will help target-date funds protect against inflation and live up to their aim of providing a reliable vehicle through which individuals can fund their retirements."

ABDC is a business unit of AllianceBernstein that offers a full range of solutions to meet the needs of defined contribution plan sponsors and participants. For a copy of the new white paper or for more information about ABDC, please go to www.abdc.com.

Each fund is named for a "target date"—the approximate year when the participant expects to retire and start withdrawing from their account. Funds furthest from their target dates emphasize growth potential by investing almost entirely in equities. As investors move closer to—and into—retirement, the funds automatically adjust to a more conservative asset mix.

Investments in target date funds are not guaranteed against loss of principal: at any time, your account value can be more or less than the original amount contributed—including at the time of the fund's target date. Also, investing does not guarantee sufficient income in retirement.

Investors should consider the investment objectives, risks, charges and expenses of the Fund/Portfolio carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.

AllianceBernstein Defined Contribution Investments is a unit of AllianceBernstein L.P.

AllianceBernstein® and the AB logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.

About AllianceBernstein

AllianceBernstein is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private clients in major world markets.

At December 31, 2010, AllianceBernstein Holding L.P. (NYSE: AB) owned approximately 37.8% of the issued and outstanding AllianceBernstein Units and AXA, one of the largest global financial services organizations, owned an approximate 61.4% economic interest in AllianceBernstein.

Additional information about AllianceBernstein may be found on our internet site, www.alliancebernstein.com.

SOURCE AllianceBernstein