Target-Date Funds: The Wallflowers Are Dancing This Year
So far in 2015, shorter-dated funds are outperforming longer-dated funds.
So far in 2015, shorter-dated funds are outperforming longer-dated funds.
Janet Yang: In the first nine months of 2015, target-date investors saw a pattern of performance that doesn't happen too often: Longer-dated target-date funds that are meant for younger investors underperformed shorter-dated funds intended for workers closest to retirement. Because those longer-dated 2050 and 2055 funds generally hold more equities than shorter-dated 2015 or 2020 ones, that pattern typically only happens when stocks underperform bonds. August's market correction saw the S&P 500 drop 12.5% from its recent peak to its recent trough, and that was enough to generally put stock returns behind those of bonds, year to date. In the last 10 calendar years, shorter-dated target-date funds have only outperformed longer-dated ones twice--in 2008 and again in 2011.
Against this backdrop, the Bronze-rated PIMCO RealPath series posted disappointing results. The series tends to hold a lower allocation to equities than peers, which should have been a helpful tailwind to results. However, the series is also one of the more globally diversified ones available. That has resulted in a hefty allocation to emerging markets, which have seen double-digit losses so far this year.
On the other end of the spectrum, almost every fund within the Silver-rated MFS Lifetime series has ranked in the top decile of its respective peer group. Those results are somewhat surprising because there's nothing obvious that would suggests it should do so well. The average market cap of its portfolios tends to be on the smaller side, which would have hurt results. Its allocation to equities is generally similar to the industry average, which shouldn't have hurt or helped. Instead, the underlying funds used in the series have had a really strong run of late. MFS Growth (MFEKX), for example, is one of the series' main equity funds. Only about a third of large-growth funds have outpaced the Russell 1000 Growth Index so far this year, and that fund was one of them. So, while discussions of target-date fund results often center around asset-allocation positioning, MFS Lifetime's results underscore the importance of having conviction in the underlying funds used in target-date series.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.