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Target Date Funds: Investors Deserve Better

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by

Michael Kane

on 28 May 2015

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Transcript of Target Date Funds: Investors Deserve Better

Why Not Manage Tactically?
ETFs & stocks

Limited trading

Easy to market to clients
Disruptors
Target Date Funds: Investors Deserve Better
The Market & Key Players
Total Assets:
$621 billion

Performance
What Are Target Date Funds?
The Upside
The Downside
Simple

Low-maintenance
An Example
T. Rowe Price Retirement 2050
Agenda
Fees
source: Morningstar, Inc.
Fund Series

Fidelity Adviser Freedom

American Century One Choice

T. Rowe Price Retirement

Target Date Fund Average
Expense Ratio

0.98%

0.95%

0.78%

0.84%
as a Solution
Generic

Costly

Risky
Key Takeaways

Structured like a Fund of Funds

High equity bias

Limited diversification
source: Morningstar Direct
Other Players
What are Target Date Funds?

The Market & Key Players

Pros & Cons of Target Date Funds

Hedgeable & the Future of 401(k) Investing
Agenda
Agenda
Agenda
Agenda
What are Target Date Funds?

The Market & Key Players

Pros & Cons of Target Date Funds

Hedgeable & the Future of 401(k) Investing
What are Target Date Funds?

The Market & Key Players

Pros & Cons of Target Date Funds

Hedgeable & the Future of 401(k) Investing
What are Target Date Funds?

The Market & Key Players

Pros & Cons of Target Date Funds

Hedgeable & the Future of 401(k) Investing
What are Target Date Funds?

The Market & Key Players

Pros & Cons of Target Date Funds

Hedgeable & the Future of 401(k) Investing
What if Markets Go Down?
"To" or "Through"
Drawdown Mitigation
Risk Management
Simplicity
Technology
Low Fees
Target Date Fund assets have increased nearly 300% since 2009
The "Big 3" control 73% of the market
Passively managed funds are gaining market share:
33% at year-end 2013
Target Retirement Date
Mix of Assets
Allocations change over time
"Glide Path"
$4.6 trillion
in retirement assets lost during the crisis


High equity bias


Not tactical
"Next-Generation Vanguard"
Actively risk managed


Markets go down, move into something less risky


Dynamic and Tactical allocation
Dozens of proprietary investment systems

Full online platform
Investment Philosophy
Average Target Date Fund
Average Hedgeable Account
0.84%
0.50%
Lower cost for a superior service
Protect you on the downside


Capture most of the upside


Maximize long-term growth
Smoother returns over the long-term
Risk Metrics
1. Target Date Funds have key weaknesses

2. Importance of risk/drawdown management

3. has the solution
Recap
*Beta and correlation relative to "Diversified Asset Allocation" benchmark
Hedgeable's risk management makes a significant difference
"To Fund"
Data source: Investment Company Institute
Defined Contribution Plans
70%
of plans with a
QDIA option use
Target Date Funds
Target Date Funds could account for over
of defined contribution assets by 2015
40%
source: ING Retirement Research Institute
To Learn More...
Visit
www.hedgeable.com
We're in the press:
93%
of TDF users want to "protect against market losses"
source: ING Retirement Research Institute
Past performance is not indictive of future performance
Full transcript