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How Top TDFs Fared in 1Q20

Since the middle of February an undeniable sense of the unknown has taken hold over our country. We are all in the the same boat, just wanting the next answer. As everything has come to a halt, something none of us are used to, and most everything has taken a toll from an invisible enemy.

Will McGough

By Will McGough on April 16, 2020



Since the middle of February an undeniable sense of the unknown has taken hold over our country.  We are all in the the same boat, just wanting the next answer.  As everything has come to a halt, something none of us are used to, and most everything has taken a toll from an invisible enemy.

 

There is a saying that goes:  “There are decades when nothing happens; and there are weeks when decades happen.” And its safe to say, lately it’s been many of those weeks.  In practically every corner of the world day-to-day lifestyles have changed very quickly.

 

The Covid-19 virus is clearly causing a challenging health environment.  Simultaneously, market volatility is impacting 401(k) account balances. These are the times when plan sponsors and participants are finding out what it really means to “take risk.”.

 

Many of us still have lots of time before our retirement nest-eggs will need to support our dreams  of easier days. Retirement planning is traditionally an almost 40-year+ journey of saving and investing.  We will undoubtedly experience  many unfortunate market movements throughout our careers.

 

Those who are about to retire are in a much different situation, relying on savings for  support  during the  “glory years.”  It’s with that mixed window of understanding, from long to short time horizon that we delve into some analysis on the most popular investment vehicles to and during retirement, Target Date Funds.

 

For full disclosure, while we would love to show the full breadth of our research engines, and to keep these charts somewhat easy on  the eye, we have decided to show the top 15 TDF asset managers (parents) with underlying glide paths as classified by Stadion and included in our “survey”  and then further limited to the top mutual fund AUM series per glide path.  Note that FlexPath does not have mutual funds so for them we use their CITs.  At the end of this blog in the disclosures are links to all relevant fact sheets for source of data checks!

 

First, we show the first quarter of 2020’s returns.  It’s the vertical, or Y axis.  Again, the return is based on the primary share class of the TDF series that has the most AUM (MF priority) per the top 15 asset managers.

 

While there are 15 parents chosen, you may notice there are not 15 lines on the chart!  Why?  Well, some managers have multiple glide path approaches.

  • Wells Fargo has 2: Their “basic” Target series plus a Dynamic Target approach, one being mostly strategic while the later takes some more alternative and tactical twists from the policy benchmark.
  • John Hancock has 2: Multi-Manager LifeTime and then Multi-Index Preservation.  Hancock was one of the first to move toward a multiple glide path approach.  With TDFs typically being one-size-fits-all, meaning 401k plan participants of similar age share same asset allocation, Hancock realized the need for glide path design to be a function of risk tolerance plus time horizon, which the preservation series does by complimenting Lifetime for contrasting Growth and Conservative approach.
  • Finally, a newer entrant, FlexPath Strategies took the multiple glide path-based approach one step further, by having 3 glide paths based on risk tolerance.

Ok, so back to 2020 Q1 analysis.  Having just mentioned a few multiple glide path-based approaches, let’s keep with that theme.

  • FlexPath Aggressive, by design, has the highest equity exposure and thus the worse TDF returns during Q1. Their conservative GP is one of the best, with their moderate glide path series, you guessed it, in the middle of the pack!
  • John Hancock Preservation is also one of the better Q1 2020 performers thanks to a lower equity (conservative) based approach.
  • Wells Fargo Dynamic is one of the better long horizon (2040+) series too
  • Vanguard closely tracks the S&P Target Date Index

In summary, for Q1 2020

  • Longer term horizon TDFs (2040 thru 2060) saw returns range from down just over 16% to just over 22%
  • Shorter term horizon TDFs (2020 to Income) saw larger deviation from down about 6% to 14%


Chart Source: Stadion

 

But, lets keep the recent events in context by showing 2019… a year that most would consider to be very bullish with the S&P 500 Index advancing over 30%!  During an up market, the mirror image to Q1-2020 is seen.  Our return chart now looks like a glide path chart, sloping from top left to bottom right as vintages get more near term.  A few insights:

  • The S&P Target Date Index continues to be approximately in the middle of returns per vintage, by design as their index methodology is a “consensus” approach.
  • FlexPath Aggressive, by design, has the highest equity exposure and thus the best TDF returns during 2019. Their conservative GP is one of the worse, with their moderate glide path series, you guessed it, in the middle of the pack!
  • John Hancock Preservation is also one of the worst performers thanks to a lower equity (conservative) based approach.
  • Wells Fargo Dynamic is one of the bottom long horizon (2040+) series too
  • Vanguard closely tracks the S&P Target Date Index

 


Chart Source: Stadion

 

Those of us who have the good fortune of experience have witnessed major market corrections.  With history on our side, we stand confident in our belief that the United States, the markets, and the non-emotional investor will recover.  Recognizing that glide path exposures drive TDF returns is critical to investors, both individual and professional.  Choosing the best TDF for a 401k plan is no easy task, as seen by the array of returns shown in the two periods above!  Looking at TDF exposure through a risk profile lens helps bring some clarity to an otherwise optically easy, but practically difficult, TDF Industry.

 


Chart Source: Stadion

 

American Funds Trgt Date Rtrmt https://www.americanfunds.com/individual/products/target-date.html
Fidelity Freedom https://institutional.fidelity.com/app/item/RD_9883298/fidelity-target-date-strategies.html
Voya Solution https://advisors.voya.com/product/retirement-investments
JPMorgan Smart
Retirement
https://am.jpmorgan.com/us/en/asset-management/gim/adv/products/smartretirement-target-date-funds
Schwab Target https://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds
T. Rowe Price Retirement https://www.troweprice.com/personal-investing/tools/fund-research/target-date-funds
TIAA-CREF Lifecycle https://www.tiaa.org/public/offer/products/mutual-funds/lifecycle-funds
Wells Fargo Target https://www.wellsfargoassetmanagement.com/investments/mutual-funds/performance.html?asset-class=target-date-retirement&share-class=R6
Vanguard Target Retirement https://investor.vanguard.com/mutual-funds/target-retirement/#/
Principal LifeTime https://advisors.principal.com/wps/portal/advisor/products/mutual-funds/lifetime
BlackRock LifePath Index https://www.blackrock.com/institutions/en-gb/solutions/defined-contribution/life-path/glidepath
T. Rowe Price Target https://www.troweprice.com/personal-investing/tools/fund-research/target-date-funds
State Street Target Retirement https://www.ssgafunds.com/product/targetRetirementFunds.seam
John Hancock Multi-Index Preservation https://www.jhinvestments.com/CMS/DownloadableItems/Microsite/TargetDate/index.html
John Hancock Multimanager Lifetime https://www.jhinvestments.com/CMS/DownloadableItems/Microsite/TargetDate/index.html
flexPATH Index+ Conservative https://www.flexpathstrategies.com/Home/Education/
flexPATH Index+ Aggressive https://www.flexpathstrategies.com/Home/Education/
American Century One Choice https://ipro.americancentury.com/content/ipro/en/products/client-objective/target-date-solutions.html#!/performance_monthly
Wells Fargo Dynamic Target https://www.wellsfargoassetmanagement.com/investments/mutual-funds/performance.html?asset-class=target-date-retirement&share-class=R6
flexPATH Index+ Moderate https://www.flexpathstrategies.com/Home/Education/

 

Will McGough

Author: Will McGough

Chief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. 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. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.

AnalysisTarget Date FundTarget Date FundsTDFTDFs
Will McGough
Written By:

Will McGough

Chief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. 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. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.


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 S&P 500 Index is Standard & Poor’s Composite Index and is widely regarded as a single gauge of large cap U.S. equities. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization.

 

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.

 

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