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Series and Paths Come and Go

Here on TargetQ Views we often talk about series and paths, which enjoy a symbiotic relationship but remain distinct. But, before digging in, let’s take a quick refresher.

Will McGough

By Will McGough on February 4, 2021



Here on TargetQ Views we often talk about series and paths, which enjoy a symbiotic relationship but remain distinct. But, before digging in, let’s take a quick refresher.

  • Series – A series is a collection of individual Target Date Funds (TDFs), which are called vintages. The series is the TDF “product” and typically most 401k plans have 1 series available to plan participants.  Series can be one of many vehicles (like Mutual Fund or Collective Investment Trusts (CIT)) based on ­one of a few strategies (Active, Passive, or Blend)
  • Paths – Defined by Stadion, we set out to classify all series by the glide path they follow. The glide path is the high-level Equity, Fixed Income, and/or Alternative asset allocation that a TDF vintage follows over time.

Asset Managers, when creating TDFs, typically have a glide path investment approach (Path) that they create multiple products from (Series).  Much of the investment industry focuses solely on TDF Series and Vintages, ignoring the Path… which we believe doesn’t truly pair analysis with action.
 
Below is a look at the TDF industry, over time, since the very first TDF back in 1993. Here, we have charted  the annual opening of new series and paths vs the number of each that close.

Reading the above chart, we can see that from the time of their infancy until the Global Financial Crisis of 2008/9, there was a spawn of new products (Series) that closely resembled the number of new glide paths (Paths).  This makes sense as they are very closely related and this new industry was just gaining traction as the preferred Qualified Default Investment Alternative (QDIA) for plan sponsors after the Pension Protection Act of 2006.

 

From the start of a new bull market in 2009 through 2013, they continued to ebb and flow similarly.  With TDF Assets Under Management (AUM) taking off, and the QDIA becoming mainstream , by 2014 a very important pattern starts to emerge.  The number of new series launched per annum begins to significantly diverge higher than the number of new paths launched.

 

What does this mean?  How is this possible?

 

This represents expansion of the number of products resulting from Asset Managers leveraging their existing investment methodology and asset allocation approach prescribed by the glide path.  Some mangers launched passive versions of their path.  With fee compression becoming ever more so important, many launched cheaper CIT versions for plan sponsors.
 
In 2019 and 2020 the number of new series (20+) versus paths (<5) was significantly different.  As fee compression hit 401(k) recordkeepers the proliferation of custom-branded series that use proprietary, guaranteed contracts became wildly popular.  In some cases, a single glide path drives 10+ products now. How confusing!

 

As troublesome as 2020 was with COVID health concerns, the election, and market volatility, our TDF industry can still glean some hope from this somewhat tattered landscape.  Indeed, the 2 new paths of 2020 were both launched by Faith-Based firms. Helpful information in case you are ever asked this at your favorite spot to play trivia!

 

So just remember, when traditional investment research outfits and/or consultants speak to the growth of the TDF industry through the lens of new “products,” be sure to remain cognizant that its most likely sales and distribution related, not investment oriented.

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.

AnalysisAsset AllocationGlide PathTarget Date Funds
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.


A target-date fund is a class of mutual funds or ETFs that periodically rebalances asset class weights to optimize risk and returns for predetermined time frame.
 
A Mutual Fund an investment program funded by shareholders that trades in diversified holdings and is professionally managed.
 
A Collective Investment Trust (CIT) is a group of pooled accounts held by a bank or trust company. The financial institution groups assets from individuals and organizations to develop a single larger, diversified portfolio.
 
A Qualified Default Investment Alternative (QDIA) is an investment vehicle a fund manager may use for retirement plan contributions in the absence of direction from the plan participant. Qualified default investment alternatives were defined in the Pension Protection Act of 2006 as part of a broader effort to ease automatic enrollment in retirement plans.
 
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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.
 
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Diversification does not eliminate the risk of experiencing investment losses.
 
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The opinions expressed herein are those of Stadion Money Management and are subject to change without notice. Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose value.
 
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