There's a plethora of different glidepaths within the target date fund (TDF) industry. Issuers create the path of their choosing based on many different factors. Along with this, issuers also have the right to change the glidepath whenever they want. These changes can be wholesale glidepath changes or more fringe-type changes. While some quarters see no changes within the industry, in 1Q21 there were a handful, possibly corresponding with year-end reviews by the individual issuers.
By Clayton Fresk on May 20, 2021
There’s a plethora of different glidepaths within the target date fund (TDF) industry. Issuers create the path of their choosing based on many different factors. Along with this, issuers also have the right to change the glidepath whenever they want. These changes can be wholesale glidepath changes or more fringe-type changes. While some quarters see no changes within the industry, in 1Q21 there were a handful, possibly corresponding with year-end reviews by the individual issuers. As a reminder, the changes we will talk about here are target glidepath changes. The actual glidepath implemented can vary from said targets based on factors such as a stated leniency/range set forth in the TDF documents (i.e., prospectus), rebalance schedule, etc.
Aon Hewitt increased the equity exposure for post-retirement investors, changing the landing equity (at 10 years past retirement) from 26% to 34%.
Goldman Sachs made a couple changes to their glidepath. First, they moved the period in which they would start decreasing equity exposure from 20 years from retirement to 15 years from retirement. They also slightly raised they equity exposure for investors in retirement from 38% to 42%.
Nationwide did not alter the beginning nor ending amount of equity on the glidepath but, rather, just the shape of the glidepath. They reduced the speed at which equity decreases for investors about 30 years from retirement and subsequently increased the reduction speed for investors 10 years from retirement, resulting in a more convex glidepath.
PIMCO broadly raised equity across the entire glidepath, increasing exposure 7% for investors farther from retirement and tailing down to a 2% increase for investors in retirement.
Putnam (Retirement Advantage)
Putnam had a small 3% increase in equity exposure for investors in retirement, from 25% to 28%.
As you can see, most of the changes this quarter were increasing equity for investors in retirement. As we continue in a low (but potentially rising) interest rate environment, it will be interesting to see if other issuers follow suit by increasing equity exposure and decreasing fixed income exposure for in-retirement investors.
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.
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.
The specific issuers reported upon here may be researched via the following URLs:
Nationwide: https://nationwidefinancial.com/#!/products/investments/mutual-funds/dcio/target-desti nation-funds
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