American Funds Target Date Retirement Series

The following is our latest Fund Analyst Report for American Funds Target Date Retirement series. Morningstar Premium Members have access to full Analyst Reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our Analyst Reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

The American Funds Target Date Retirement series has struck the right balance between top-down and bottom-up decision-making, earning its cheapest share classes a Morningstar Analyst Rating upgrade to Gold from Silver, with the remaining shares landing between Silver and Neutral depending on fees.

The series’ recently revamped multi-asset group has made tangible, beneficial changes. Previously, its approach to portfolio construction lacked the intentionality and rigor to merit high conviction. Yet in January 2020, American Funds’ parent Capital Group created the Target Date Solutions Committee to oversee this series and enhance its quantitative capabilities. This foundational work produced sensible changes to the glide path in April 2021 after extensive research. Series leaders Michelle Black and Brad Vogt moved to increase the series’ geographic flexibility in its equity sleeve by trimming several region-specific strategies for more global, go-anywhere funds. As such, Black and Vogt entrust the bottom-up stock-pickers in strategies like American Funds New Perspective, whose allocation to non-U.S. stocks has ranged from 40% to 53% over the past decade, to methodically steer the series into the best opportunities.

The changes play to the firm’s strengths. Deep and highly specialized analyst teams that span the globe back the underlying strategies, and the firm’s portfolio managers have a strong pedigree. Morningstar Medalists comprise more than 90% of the series’ assets, a remarkable feat considering it consists entirely of actively managed American Funds. Its equity or allocation strategies’ cheapest shares all earn Analyst Ratings of Gold or Silver, and the fixed-income funds pair nicely with the equity sleeve.

The series’ nuanced glide-path design creates differing performance outcomes across its vintages. The longest-dated portfolios lean into the firm’s growth strategies, while the vintages closest to retirement emphasize equity income, producing more of a value tilt relative to their respective S&P Target Date benchmarks. This posture was evident in the rally that began with the vaccine announcement on Nov. 9, 2020, through year-end 2021, when the growth-biased 2060 fund’s R6 shares’ 27.1% return trailed its bogy while the 2020 portfolio’s 15.6% gain comfortably outpaced its benchmark’s 12.9%.

In all, the series has long delivered excellent results. All 10 portfolios with 10-year track records have bested at least 95% of their respective Morningstar Category peers on both an absolute and risk-adjusted basis, as measured by Sharpe ratio, over that stretch. While replicating that performance over the next decade will be difficult, the series has added some key ingredients to ensure its best days are still ahead.