According to a Schwab announcement, each is a fund of funds geared to a specific retirement time frame, investing in an underlying blend of equity and bond mutual funds. The Target Funds will invest in a combination of Schwab and Laudus Funds with varying allocations based on retirement dates ranging from 2010 to 2040.
The new funds are scheduled to kick off operations July 1, 2005. During the subscription period, Schwab clients can invest in the funds at an offering price of $10 per share.
“Only 50% of baby boomers are estimated to be accumulating enough to be able to support their current standard of living during retirement years,” said Evelyn Dilsaver, president of Charles Schwab Investment Management, in the announcement. “Many don’t have the time or expertise needed to create a sound investment portfolio and successfully nurture it over time. Our Target Funds are a one-step solution for people who want to ‘set it and forget it.’ You choose a fund based on your retirement date, and Schwab’s fund managers oversee the portfolios and keep them on track.”
The news release said that research by Schwab’s Center for Investment Research (SCIR) has determined that at retirement, a moderate portfolio with about 60% in stocks, 35% in bonds and 5% in cash offers the best risk-return trade-off. The funds gradually decrease their equity holdings and increase fixed-income holdings as investors approach and enter retirement. For investors in retirement, the Schwab Retirement Income Fund focuses on providing current income along with equity-growth potential.
Schwab Target Funds will invest in Schwab-affiliated equity and bond funds, according to the allocation strategy developed by SCIR. Assets in each of the funds will be allocated among 10 equity, fixed income and money funds – a smaller universe than most target funds, which Schwab said will help to keep the fund focused while minimizing overlap.
Fees for the Target Funds will be based on the select (or institutional) share class of each underlying fund. Fund expenses are 98 bps for the Schwab Target 2040 Fund (aimed at those retiring in or around 2040), gradually decreasing to 70 bps for the Schwab Retirement Income Fund (aimed at those in retirement) as the funds become more heavily invested in fixed-income, Schwab said.
Jeffrey Mortimer, senior vice president and chief investment officer for equities at Charles Schwab Investment Management (CSIM), is responsible for overall management of the funds. Mortimer oversees Schwab’s equity index funds and all Schwab funds and separate accounts based upon Schwab Equity Ratings.
Kim Daifotis, senior vice president and chief investment officer for fixed income, is responsible for the bond and cash-equivalent assets of the Target Funds. Daifotis oversees all fixed-income funds for CSIM, including municipal, taxable and money market funds.