Research, analysis, and thoughts on retirement investments & the future of personalization
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.
Target Date Funds (TDFs) are often categorized by being active or passive based on the makeup of the underlying holdings. Many issuers also offer blended or hybrid TDF series, which utilize both active and passive underlying holdings. However, the specific blend of active and passive holdings can be very different among issuers.
Target Date Fund (TDF) issuers have a stated target glidepath they adhere to when building asset allocation within the different vintages. One caveat is that many issuers have the ability to adjust exposure from this target/baseline exposure based on market conditions. However, issuers also have the ability to alter this target glidepath as they see fit. Often, these changes are relatively minor, but sometimes a more significant shift may occur.
With the market trepidation of the 1st quarter having quickly receded, the 2nd quarter was notable for its complete turnaround performance-wise. Equities climbed significantly higher, with some areas of the market surpassing recent highs from late March. Fixed income kept moving right along as interest rates stayed relatively flat during the quarter. So, how did Target Date Fund performance fare?
With the United States, and world, currently entrenched in pretty massive uncertainty around COVID-19, unemployment, finances, politics, etc., it’s not surprising the industry saw a pretty massive dip in Target Date Fund (TDF) flow for the 2nd quarter. In this piece, we’ll look at those trends as well as track some general quarterly flow data.
We’ve talked a fair amount about Passive vs Active TDFs, which refers to the type of underlying vehicles the TDF utilizes. (Note: There’s also Blend TDF which use a mix of active as passive vehicles). While these passive TDFs each follow their own glidepath, the holdings themselves are not necessarily homogeneous. In the following we’ll compare the underlying exposures of the top passive TDFs.