Administration June 3, 2008

FRC Target-Date Fund Analysis Shows Wide Range in Equity Allocations

June 3, 2008 (PLANSPONSOR.com) - When looking at 2020 funds, there is a wide range in equity allocations spanning from 51% to 95%, according to a study released by Financial Research Corporation (FRC).
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In a press release, FRC said its study, Future Outlook for Lifecycle Funds: Insights into Emerging Trends and Growth Opportunities, profiles 58 of the leading target-date and target-risk providers, examines changes in asset allocation strategies, assesses performance benchmarks, and reveals insights into the selection and use of lifecycle funds by recordkeepers and advisers.

Other key findings of the study include:

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  • More than one-quarter, 27%, of firms reviewed by FRC indicated that they offer exposure to at least one non-traditional asset class. This represents a large, disparate group of asset classes, including sectors (real estate, commodities), specialty fixed income (high yield, TIPS), regions (emerging markets), and hedged options (long/short, market neutral);
  • Most, 60%, of target-date funds use a mainstream index as their primary benchmark. The most popular index is the S&P 500, with nearly three-quarters of firms that use a mainstream index selecting it as their primary benchmark; and
  • A majority of firms reviewed by FRC (56%) use a tactical rebalancing approach (changes in allocations allowed within specified ranges), which keeps the target-date series on its glide path while still allowing for some flexibility to take advantage of market opportunities.

The report also provides a peer group analysis through which like funds with similar allocations are ranked within a single target-date category. “FRC’s peer group analysis allows for an “apples-to-apples” comparison of target-date funds based on current allocations,” said FRC study author Lynette DeWitt, in the press release. “Using FRC’s methodology, advisers can add value by selecting the most appropriate allocation for an investor among the range of funds available. Plan sponsors can also use this peer group analysis to select the most appropriate investment for plan participants…”

For more information about the study, contact Trisha Langlois at FRC at (617) 824-1204 or via e-mail at Trisha.Langlois@frcnet.com .

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