As assets continue to flow to DC plans from DB plans, Dimensional Fund Advisors LP is working to bolster its presence in the defined contribution market.
Its DC business, which dates to 2008, had $47 billion under management as of Dec. 31. But it wasn't until November 2015 that Dimensional launched its first entries into the fast-growing target-date fund arena.
Dimensional officials say the target-date funds were only introduced after years of research developing better investment strategies.
The 13 Dimensional target-date funds, like other target-date funds, invest heavily in growth and income assets when investors are young. But they move more heavily to a liability-driven investment approach as employees move closer to retirement, using larger concentrations of instruments such as Treasury inflation-protected securities, to manage income risks, and guard against inflation, interest-rate and market risk.
Jeff Holt, associate director of manager research at Morningstar Inc., Chicago, said the funds are unique because they invest up to 75% of assets in long-term TIPS near a participant's retirement age, compared to the average competitor's 10% of assets.
He said the aim is to ensure a constant stream of retirement income. But he said the funds could be "volatile" during the glidepath cycle because there could be "significant price movements in the long-term TIPS," potentially causing investors to be "spooked" and abandon the funds.
But it remains to be seen whether the Dimensional funds will catch on with investors. As of March 31, after 16 months in operation, the 13 target-date funds had a combined AUM of $479 million, show Dimensional statistics.
"The hurdle will be to convince investors or plan sponsors that this is a superior approach to target-date investing," Mr. Holt said.
The funds were developed with the help of Robert Merton, a Nobel Prize-winning economist who also serves as a resident scientist for the firm.
It is unclear whether Mr. Merton is continuing work on refining retirement investment solutions at Dimensional. Alex Stockham, a spokesman for Dimensional, said Mr. Merton is involved on the firm's investment research committee and his expertise in asset pricing and theoretical research can be accessed by other Dimensional officials. Mr. Stockham also said Mr. Merton "interacts with clients on relevant topics, including his research on retirement income, etc." He did not go into specifics.