Providers Examine Target-Date Funds More Closely During Downturn

May 12, 2009 ( - A new survey from Callan suggests target-date fund managers have stepped up examinations of their offerings due to the down economy.

The 2009 Callan Target Date Fund Manager Survey, published by the Callan Investments Institute and authored by Lori Lucas, DC practice leader for Callan, found that the majority of providers (53.3%) evaluate their glide paths annually, and 23.3% do so quarterly. However, due to recent market events, 85% of fund managers examined their glide paths between October 2008 and March 2009, according to a Callan press release.

Just over a third (34.5%) of fund managers made changes as a result of the interim review. Some managers that did make adjustments reduced the aggressiveness of the glide path, while others chose to improve diversification, the press release said.

“The majority of target-date fund managers are avoiding a knee-jerk reaction to the market crisis,” said Lucas, in the announcement. “They continue to examine the situation closely, but are being measured in their response.”

Aside from altering the glide path, 54.5% of managers made other target-date fund changes within the past six months. The most common change was to underlying funds/managers employed in the target-date funds (61.1%).

“Target-date fund managers know they are going to be held accountable for performance by managers within their funds and many are being proactive about eliminating under performers,” said Lucas.

Target-date fund glide paths continue to vary widely in terms of equity exposure and shifts in allocation over time across funds, according to the 2009 Callan Target Date Fund Manager Survey. However, variations are most profound in nearer-term funds.

A press release said equity allocations for 2010 funds in the survey sample range from more than 60% to less than 20%. Some later series' target date funds have equity exposure that is most conservative at retirement, while others will glide down well into retirement.

Variations in equity allocation and the use of asset classes can materially impact target-date fund performance, Callan notes. The worst performing 2010 fund in the sample lost 15.87% in the fourth quarter of 2008 and 34.48% for the year, while the best performing 2010 fund lost 6.20% and 12.92%, respectively.

Nearly 67% of managers reported that they take a strategic approach to asset allocation compared with 6% that take a tactical approach.

The March 2009 survey covers nearly 30 fund managers.

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