Lipper: Lifecycle Funds Explode in Popularity
The report, Lifecycle Funds: Fit for Life, said there were more than 244 lifecycle funds with $139 billion in assets at the end of 2004, up 38% from the 205 funds with $101 billion in assets a year earlier.
Lipper said it is using the Lifecycle moniker as an umbrella category for lifestyle funds (fund allocation based on participant’s risk profile – often conservative, moderate, and aggressive) and target retirement funds (geared to a participant’s target retirement date with less aggressive allocations for those nearly at retirement). Lipper said there were $95.8 billion in lifestyle funds by year-end 2004, up 28% while assets in target retirement plans skyrocketed 65% to $43.9 billion
“The appeal of both lifestyle and target retirement funds is that, with fund management companies managing allocations, investors can concentrate on other things,” Lipper researchers wrote. “Because of their convenience lifecycle funds should keep growing, In addition, an increasing number of fund management companies are jumping on the bandwagon and rolling out competing offerings.”
According to the Lipper report, of the 55 fund companies offering lifecycle funds, Fidelity Investments has 34.2% of the market followed some distance behind by The Vanguard Group with 17.2%. Rounding out the top five were Frank Russell with 4.2%, T Rowe Price with 4% and JP Morgan with 3.9%.
Lipper said that plan sponsors have been trying to encourage eligible employees to participate through efforts such as auto enrollment, but that many are now relying on the lifecycle funds as a plan default option to help the non-engaged workers with a proper asset allocation. Many plan sponsors had previously been using money market or stable value funds for this purpose, Lipper asserted.
The company pointed out that studies have shown that many participants misuse the lifecycle funds by employing them alongside other investment options. “Plan sponsors need to invest more resources in their education and communication programs so that participants reap the most reward from the lifecycle investment options,” Lipper warned in the report.
On the negative side, Lipper pointed out lifecycle funds are only as good as the fund family’s product lineup since they are shares of the other funds. Also, Lipper said different fund companies’ target retirement funds with the same retirement date can assume different levels of risk because they may be based on different asset allocation models.
The Lipper report can be obtained at http://www.research.lipper.wallst.com/fundIndustryOverview.asp .