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Target Date Analytics (TDA), a new company with a mission to measure the effectiveness of target date funds, has released its first study of the industry. TDA looked at 38 fund companies with target date offerings, and measured the performance, risk, and fees of each fund.
The results are not encouraging. As a whole, target date funds fail to shift assets into safer (fixed income) securities as the target date approaches, fail to adequately diversify portfolios, and – which will be no surprise to many – those that are actively managed failTarget Date Analytics has a complete study of all 38 fund companies offering target date funds as of 12/31/07. This comprehensive 150+ page report provides 4 pages of important insight on each fund company. Popping the Hood III is available at www.TDBench.com. to outperform passive benchmarks.
We have written previously about TDA and their methodology. TDA was kind enough to allow us to preview their initial study of the industry. We also spoke with Ron Surz, Craig Israelsen, and Joe Nagengast, Principals with the firm, about the study’s findings. Nagengast’s firm, Turnstone Advisory Group, published two prior versions of the study, and the research is now consolidated through TDA.
Surz believes the TDA report is the only comprehensive analysis of the target date industry directed to plan sponsors. New regulations allow target date funds to be a default option for 401(k) plans. But, as Surz notes, “this does not let plan sponsors off the hook when it comes to selecting the best available funds and fund companies.” As a practical matter, most plans choose only one or two fund companies to provide target date funds for 401(k) participants. Since sponsors make this selection at the fund company level, it makes sense to grade the industry by fund company, rather than by fund.
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