arrow_backReturn

3Q TDF Industry Glidepath Changes

Target Date Funds (TDFs) have a pre-determined glidepath which drives its asset allocation. While it does not happen frequently per se, this pre-determined path can be changed by the TDF issuer at any time. These adjustments can be smaller more fringe changes or more wholesale methodology changes.

Avatar

By Clayton Fresk on November 20, 2019



As we’ve mentioned, Target Date Funds (TDFs) have a pre-determined glidepath which drives its asset allocation. While it does not happen frequently per se, this pre-determined path can be changed by the TDF issuer at any time. These adjustments can be smaller more fringe changes or more wholesale methodology changes. During some quarters the industry will not see any changes. However, during 3Q19 a handful of issuers altered their glidepath.

 

Common terminology in the industry is whether a glidepath has a “To” or “Through” methodology. TDFs also have a landing year, at which point the glidepath ceases to reduce equity. “To “TDFs have a landing year of 0, corresponding with the retirement date. “Through” TDFs can have varied landing years, spanning from 5 years to 30 years past retirement. TDFs also have a landing equity, which is the terminus amount of equity used. This is graphically illustrated by a flatlining of exposure. Issuers have the ability to change any of these data points or adjust the amount of equity at different points along the path. We’ll see different examples of each in the following.

 

One other note is that these changes were to the Target glidepath, which can differ from the Actual glidepath for any given quarter. The main cause of a discrepancy is whether a manager has the ability to adjust exposure based on market conditions. Many managers have a window of leeway built in to be able to adjust from the target allocation. An example is at a given vintage, the target allocation may be 85%, but the manager can allocate anywhere from 80% to 90%.

 

Nationwide

 

One of the more drastic changes we saw this quarter came from Nationwide on their Destination TDF series. Previously, Destination was classified as a Through fund with a landing year of -20. However, this quarter the issuer changed to a To fund and a landing year of 0. They also adjusted the landing equity from 31% to 35%. Here are the changes graphically:
(See footnote 1)

TIAA-CREF

 

A more minor change came from TIAA-CREF, who announced they would make an adjustment during 4Q19 to the landing year of their Lifecycle fund from T-10 to T-30, with a corresponding change in landing equity from 35 to 20. These changes allow for a continuing reduction in exposure for investors who have been retired for over 10 years. The rest of the glidepath did not change.
(See footnote 1)

 

Prudential

 

A very minimal change came from Prudential, which reduced target equity at T+20 and hence had a small glidepath shape change on the front end of the curve, with the back end not changing.
(See footnote 1)

Callan

 

Another change we saw this quarter came from Callan, who both changed their landing year (from T-20 to T-10) and the landing equity (from 25 to 30).
(See footnote 1)

Wells Fargo Dynamic

The last change is a prime example of the data scrubbing that is necessary to get a comprehensive view.  Per a prospectus addendum, Wells Fargo Dynamic increased the equity allocations by about 5% on the longer-dated part of the glidepath (2050-2060).  However, based on reported information, it appears they increased by about 5% across most of the curve.  In this situation it appears the previously reported data may have been incorrect and has been remedied along with the confirmed change

(See footnote 1)

 

1: Glidepaths label 3Q were announced in 3Q19 to take effect 4Q19.

Avatar

Author: Clayton Fresk

Clayton Fresk joined Stadion Money Management in 2009 and currently serves as Portfolio Manager of Stadion’s Retirement investment strategies, which comprises oversight of Stadion’s managed account, target-date, and risk-based strategies. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Clayton holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the CFA Society of Minnesota. He also received an MBA degree and a Bachelor's degree in Finance & Marketing from the University of Minnesota.

3Q19AnalysisGlidepath ChangesQuarterly Wrap UpRetirementTarget Date FundsTDF
Avatar
Written By:

Clayton Fresk

Clayton Fresk joined Stadion Money Management in 2009 and currently serves as Portfolio Manager of Stadion’s Retirement investment strategies, which comprises oversight of Stadion’s managed account, target-date, and risk-based strategies. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Clayton holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the CFA Society of Minnesota. He also received an MBA degree and a Bachelor's degree in Finance & Marketing from the University of Minnesota.


There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.

 

The commentary, analysis and opinions expressed are those of Stadion’s investment Team. The commentary, analysis and opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice. This is not a recommendation to buy or sell a particular security. The investment strategy or strategies discussed may not be suitable for all investors.

 

Investors must make their own decisions based on their specific investment objectives and financial circumstances. Stadion Money Management, LLC (“Stadion”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Stadion’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.

©2019 Stadion Money Management, LLC. All rights reserved. Stadion and the Stadion S are registered service marks of Stadion Money Management, LLC. StoryLine is a service mark of Stadion Money Management, LLC.

SMM-112019-661