Fund Managers Making Changes to TDF Management

July 7, 2011 ( - Callan’s 2011 Target Date Fund Survey: The Evolving Target Date Fund shows target date funds (TDFs) continue to evolve as managers evaluate their glidepaths and the use of underlying funds.

While the majority of respondents (89%) said their funds’ asset allocations are strategic in nature and substantial changes to their glidepath structures uncommon, more managers are increasingly incorporating a tactical overlay and deviating from the stated strategic asset allocation. Thirty-seven percent of managers signaled they now use the strategic with tactical overlay approach, compared with 24% in 2009. The majority of managers (51.9%) still consider their approach purely strategic—a big drop from 64% in 2009.  

According to a news release, the survey also determined that glidepath evaluations have become more frequent. While annual glidepath evaluations remain the most common with managers, at 50%, monthly evaluations are rising. Nearly one in five managers (18.2%) now conduct monthly evaluations, a considerable rise from 3.3% in 2009. Conversely, this year, 13.6% of managers will perform quarterly evaluations, a drop from 23.3% in 2009.  

Callan’s research also shows that a majority of managers (58.3%) changed their glidepath as a result of their most recent evaluation—a significant jump from the 34.5% reported in 2009. Spurred by inflation concerns, the most noteworthy change involved the incorporation of inflation-sensitive assets into the glidepath fund lineup—with the majority maintaining exposure to a combination of TIPS, U.S. REITs, international and global REITs, commodities and/or diversified real estate.  

Another popular adjustment involved diversification within asset classes and steps to reduce volatility. This includes the addition of, or increase in, international or emerging markets exposure—with several firms increasing their international equity exposure at the expense of domestic equity. Within fixed-income, notable additions include mortgage funds, global bonds, and senior loans as a strategic allocation.  

According to Callan, 62.9% of the target date strategies represented in the survey are actively managed, 20% are passively managed and 17% are hybrid (a mix of active and passive). Funds also vary widely by glidepath design and the pace of the decline in total equity exposure (equity roll down) as the investor ages. Across the universe, 65.7% of survey respondents advised that their glidepaths are managed through age 65 retirement, while the remainder are managed to the retirement age of 65.  

With respect to the use of in-plan annuities, none of the TDF managers surveyed had incorporated these into their glidepath funds, and only 16% were considering annuity-type solutions for the future.  

In March 2011, Callan surveyed 26 target date fund managers representing $375 billion and 35 unique target date series to get their take on management approaches, glidepath design and anticipated changes.