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Wednesday, March 14, 2012

Where Do Alternatives Fit Into Target Date Funds?

News summary by MFWire's editors

As target date funds continue to gobble up 401(k) assets, mutual fund firms and other asset managers are developing new approaches to the age-based funds to compete with the big three providers -- Fidelity, T. Rowe Price and Vanguard. In a long overview on the state of target date funds today, Bloomberg offers a look at target date funds from two mutual fund firms, Invesco [profile] and Pimco [profile], who are trying to differentiate their offerings by using more exotic strategies.

Invesco's $256-million target date family, launched in 2007, incorporates exchange-traded futures and futures swaps for commodities.

“There’s complexity in the guts of how we manage the portfolio but there’s a simple approach,” Scott Wolle, chief investment officer of global asset allocation at Invesco, told the wire service. “We’re trying to win by not losing.”

Pimco puts derivatives in its target date funds, to hedge against credit risks, currency dislocations and inflation. Its target date funds boast $180 million in assets.

“While the hedges do cost something in terms of putting them into the portfolio, they have the potential to not only pay for themselves but they can and have been a source of out- performance at least historically,” explained John Miller, head of U.S. retirement for Pimco.

Bloomberg's article also features input from:

  • Jerome Clark, PM for T. Rowe Price's target date funds;

  • Robin Diamonte, chief investment officer for giant 401(k) plan sponsor and customized target-date fund user United Technologies;

  • the Employee Benefit Research Institute (EBRI);

  • Jim Lauder, CEO of Global Index Advisors, which runs target date assets for State Street and Wells Fargo;

  • Laura Lutton, a Morningstar editorial director;

  • MFS chairman-emeritus Bob Pozen (#94 on MFWire.com's 2010 influencers list);

  • Jeremy Stempien, director of investments for Morningstar Investment Management's retirement solutions group;

  • Ron Surz, developer of the Safe Landing Glide Path target date funds;

  • and Mark Wayne, CEO of Freedom One Financial Group

    Edited by: HFD

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