American Funds, the investment management company owned by Capital Group that recently overtook Fidelity as the second largest provider of mutual funds by total assets, has launched an analytics tool to help plan advisors and sponsors vet the quality of target date funds offered in retirement plans.
Target Date ProView was designed to align with guidance issued by the Department of Labor in 2013 on TDFs, and uses Morningstar data to provide "unbiased evaluation" of the quality of life-cycle funds, according to a statement from the company.
The company claims its new evaluation platform differentiates itself form other providers' TDF analytics tools by offering a traditional review of products and a second "deeper view."
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The traditional view applies metrics commonly used to compare how equities and fixed-income investments are allocated throughout a TDF's glide path.
The "deeper view" applies a retirement efficiency ratio to evaluate at TDF series' balance of market risk and longevity risk, allowing for a more in depth analysis.
In assessing returns on different fund families, the traditional view uses Morningstar rankings to compare value, while the deeper view assess how much equity risk funds have used to achieve higher returns. The deeper view compares costs by analyzing expense ratios with the performance of the funds.
The deeper view also examines the percent of actively managed funds built into TDFs, and considers fund manager tenure in assessing the value of a fund.
American Fund's $1.2 trillion in assets under management are all in actively managed products, according to Morningstar's latest asset flow update. Its funds have seen more than $5 billion in inflows over the past year, at a time when actively managed offerings in general are falling out of favor with investors.
Research consultants are predicting exponential growth in the nearly $800 billion TDF market. Investment consultant Casey Quirk and Associates is projecting assets will swell to $3.7 trillion by the end of 2019. Cerulli Associates expects 88 percent of all new retirement plan contributions will flow to TDFs by the same time.
Capital Group recently surveyed plan advisors and sponsors to gauge how often TDFs in investment menus are evaluated. Two out of three said they expect an evaluation at least every two years, with advisors more apt to review funds with greater frequency than their sponsor clients.
More than one-third of advisors and sponsors said they did not conduct a more frequent analysis of TDFs because the process is "too complex."
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
