BlackRock Inc., Vanguard Group Inc., ING Investment Management, Northern Trust Corp., John Hancock Asset Management, Franklin Templeton Investments and Columbia Management Investment Advisers LLC are among those recently reworking their funds to respond to market trends and economic forecasts.
“There's definitely a concern about long-term inflation, and there's an intent to diversify by seeking assets with a lower correlation to equity markets,” said Joshua Charlson, senior mutual fund analyst at Morningstar Inc., Chicago, who surveys the target-date landscape. “Some (funds) are introducing more risk awareness toward the end of the glidepath.”
A Morningstar report issued in April noted that equity allocations among target-date funds were lower in 2010 than in 2009, especially for the “shorter-dated” funds, those with a retirement age dated between 2010 and 2035.
Commodities, real estate and real estate-linked securities are among the asset classes being added to target-date funds tracked by Joshua Cohen, the Chicago-based DC practice leader at Russell Investments.
“Diversification is the main issue,” said Lori Lucas, executive vice president and defined contribution practice leader for Callan Associates, San Francisco. Asset allocation themes include greater exposure to Treasury inflation-protected securities and commodities as well as more international equities and/or emerging markets equities, she said.
Preliminary results of a Callan survey reveal that about half of the 26 target-date fund managers interviewed have adjusted their plans' glidepaths, she said.
“Mitigating risk is often cited as the theme of the glidepath changes. There was virtually no dramatic shift of glidepaths after 2008, so people won't get whipsawed.”
Based on his target-date fund observations from early 2010 to early 2011, Mr. Cohen of Russell Investments said glidepaths of least five fund families had become “more conservative or more static.”
For Morningstar's Mr. Charlson, the changes are “primarily (due to) adding commodities/real-asset sleeves to the glidepath, and secondarily making the glidepath more conservative near retirement.”
Although its glidepath hasn't changed since 2001, BlackRock, New York, added commodities to its target-date series in March to provide diversification, said Chip Castille, managing director and head of the U.S. and Canada defined contribution group. “Commodities exhibit low correlations with existing asset classes” such as U.S. equities and bonds, he said.
Commodities exposure ranges between 3% and 4.5% and is available only in collective investment trusts, which account for $41.1 billion of the $48.6 billion in the firm's target-date fund assets under management.
Vanguard, Malvern, Pa., altered its equity allocation without altering the glidepath. Within the total stock component, international equity was raised to approximately 30% from about 20%.
This revision “has the potential to improve diversification and reduce volatility in these portfolios over the long term,” Linda Wolohan, a Vanguard spokeswoman, said in an e-mailed response to questions. Vanguard has $88.4 billion in target-date fund assets.
ING Investment Management, New York, made “modest” changes in asset allocation and glidepath structure May 1, reflecting, in part, that “our long-term forecast shows bonds are such poor investments,” said Paul Zemsky, chief investment officer for multiasset strategies.
Now, the income fund for people in retirement has a 35% equity allocation vs. the previous 30%. “Our philosophy hasn't changed,” Mr. Zemsky said. “Relative to peers, we're more aggressive in equities in the beginning of the target-date cycle and more conservative closer to retirement.”