Administration June 18, 2012

Most TDFs Employ a “Through” Glidepath

June 18, 2012 (PLANSPONSOR.com) – More than six in 10 target-date funds (63.6%) surveyed by Callan employ a glidepath managed “through” retirement.
Reported by

In total, these funds account for the majority of assets managed (87.7%). Twenty-eight target date providers offer 35 series using this approach, according to Callan’s latest survey of target-date fund managers. The universe of “through” managed funds is divided into fully active management (31.4%), passive management (25.7%) and those that combine active and passive management (42.8%).   

Target-date funds (TDFs) managed “to” retirement accounted for 12.3% of total target date assets at year end. The universe of “to” managed funds is split nearly equally between active (47.6%) and an active/passive blend (42.8%); whereas there is only one purely passive target date fund in this universe.  

Get more!  Sign up for PLANSPONSOR newsletters.

Prevalence of inflation-sensitive assets increased relative to 2011. The survey found greater use of commodities and U.S. and international REITs (Real Estate Investment Trusts) in particular. In 2011, more than half of the target date managers surveyed changed their glidepath as a result of a recent review. The most common glidepath change reported was the addition/ increase in the inflation-protection component. In Callan’s 2012 survey, two-thirds of managers reported glidepath modifications, once again primarily surrounding inflation-sensitive assets. This category includes TIPS (Treasury Inflation-Protected Securities), commodities, REITs, diversified real assets, natural resources, infrastructure and gold and precious metals. 

There is also an increase in the use of emerging markets—both equities and debt. Emerging markets equity prevalence jumped from 60% of providers to 76.7% over the last year. The second most common glidepath change reported in 2012 involved improving the diversification within asset classes, especially international equities. Diversification efforts included adding/increasing emerging markets equity exposure (this ranked fourth in 2010 changes), as well as adding or increasing small/mid-cap international exposure.  

One-fifth of funds report an allocation to alternatives—namely absolute return strategies.The average allocation within the Callan Target Date Index was 1.3%, up from 1% in 2011.  

One trend that appears to be underreported in the survey is a reduction in the overall equity exposure of TDFs. In 2012 very few target-date fund managers reported changing their overall equity to fixed income exposure (7%), and those that did noted only marginal changes. However, a year-over-year quantitative analysis of the typical TDF’s equity glidepath reveals a material decline in equities and equity-like investments.
Investing June 18, 2012

Participants Turn Back to Fixed Income in April

June 18, 2012 (PLANSPONSOR.com) - April was the first month this year that the net direction of 401(k) participant transfers moved back toward fixed income.
Reported by

Sixty percent of days in April had net transfer activity away from equities, according to the Aon Hewitt 401(k) Index. Out of $136 million in net transfer activity for the month, $112 million moved from equities to fixed-income investments. Of the net equity outflows, $35 million (25%) came from company stock, which means $76 million of the outflows are from diversified equities (0.08% of total balances).  

Small U.S. equity assets accounted for 46% ($63 million) of the diversified equity outflows, followed by large U.S. at 13% ($17 million). Emerging markets accounted for 9% ($12 million) of the outflows. GIC/stable value and bond asset classes absorbed the majority of the inflows, as each respectively received 46% ($63 million) and 20% ($28 million). Premixed funds, including target-date and target-risk funds, also received 21% ($29 million) of the net inflows for the month.  

Get more!  Sign up for PLANSPONSOR newsletters.

Following the strong first quarter returns (strongest quarter since 1998), as equity markets declined throughout April, employee discretionary contributions—a gauge of participant sentiment—withdrew slightly to 62.2% in equity allocations (down from 62.6% in March).  

The total asset allocation in equities also declined nominally. Equities now hold 60.4% of total assets, which is a 0.2% decrease for the month.  

More information can be found here.

«