As we’ve talked about in a couple previous posts, TDF issuers have the right to alter their glide path at any given time. Any given quarter may see numerous or few (if any) changes within the industry. Despite the tumultuous market in the 1st quarter, the industry saw minimal glide path changes.
By Clayton Fresk on May 21, 2020
As we’ve talked about in a couple previous posts, TDF issuers have the right to alter their glidepath at any given time. Any given quarter may see numerous or few (if any) changes within the industry. Despite the tumultuous market in the 1st quarter, the industry saw minimal glidepath changes.
As review, the changes are at the target level, not the actual allocation. While for many issuers the target and actual are very similar if not one in the same, other issuers have a degree of freedom to deviate from the stated glidepath. The amount of deviation can vary; for example, various issuers allow managers a +/- 10% dynamic window in which to operate. Other issues have alternate mandates to which glidepath deviation can occur, such as volatility targets at certain points along the path.
But in terms of target level changes on the quarter, there was really only one issuer who changed.
In February 2020, T.Rowe Price announced they were increasing equity across most of the glidepath for both of their glidepaths. T.Rowe offers a more aggressive glidepath, in which most of their AUM falls. However, they also offer a more conservative glide path which also increased equity. Additionally, Mass Mutual has a series subadvised by T.Rowe Price, which follows the more aggressive glide path and hence also increased equity.
Here is the 1st glidepath:
Chart Source: Stadion
Most of the glidepath experienced a 10% increase in equity, except for investors right before retirement who saw no change.
Here is the 2nd glidepath:
Chart Source: Stadion
The 2nd glidepath also saw a 10% increase for younger investors but given the more conservative nature of the glidepath (lower equity), the changes in the other portions of the glidepath were less pronounced.
Additionally, this target change may not be instantaneous, as per the prospectus T.Rowe plans to implement the changes “within the next two years”. From holdings analysis, it looks like they implemented a partial change during the 1st quarter, with both glidepaths having a marginally higher equity allocation as compared to 4th quarter 2019.
After the 2007-2009 bear market, the industry saw various issuers lower the amount of equity in their glidepaths as a reaction. After experiencing 10+ years of a bull market since then, we’ll see if this most recent bear market also has some issuers reducing equity in the forthcoming quarters.
Author: Clayton FreskClayton 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.
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