Several target-date fund providers raised the equity components of their glidepaths, saying their research shows participants have a slightly higher risk tolerance than in the years immediately after the economic crisis.
Although executives at the firms acknowledge they're not counting on equities to continue to match the annual gains of the recent bull market, they say a higher equity component is justified by a forecast of more economic stability and slightly less risk to equities. Just as important, they add, are results of internal research on participants' investing behavior and attitudes.
Firms increasing equities in their glidepaths include BlackRock Inc., New York; Fidelity Investments, Boston; Pacific Investment Management Co., Newport Beach, Calif., and J.P. Morgan Asset Management, New York.
These glidepath adjustments underscore the different strategies among target-date fund families. One example is the equity allocation for the various funds whose participants are at or closest to retirement. The revised equity components are 40% for BlackRock; 54.9% for Fidelity; 20% for PIMCO; and 36% for J.P. Morgan Asset Management.
BlackRock's new glidepath for its LifePath series will take effect this fall for its collective trusts and next summer for its mutual funds, said Chip Castille, managing director and head of the U.S. retirement group. This is the first change to the equity allocation since 2001.
BlackRock is raising the equity allocation to 40% from 38% at the landing point (when a person retires and the equity-to-fixed-income ratio remains unchanged throughout retirement).
Equity allocations also are being adjusted throughout the LifePath series, with the largest percentage-point increases coming in funds catering to people 20 to 30 years away from retirement. For example, for a person 25 years from retirement, the new glidepath will have about a 94% equity allocation vs. 78%.
These bigger equity increases for longer-dated funds reflect “the longer investment horizon for younger investors,” Mr. Castille said.
The glidepath revision was based in part on studying consumers' savings behavior and asset-allocation levels. “That's driving our decision more than equity markets,” he said.
Mr. Castille said BlackRock's glidepath review also takes into account 10-year capital market assumptions, but he didn't provide details on BlackRock's forecast. Asked if the glidepath change was influenced by the rising stock market in recent years, Mr. Castille said: “Our forecasting process is looking ahead — not looking behind.”