AIG SunAmerica Asset Management Corp. is getting into the target maturity fund game, but with a twist. The Jersey City, New Jersey-based unit of American International Group has added a guarantee return feature to its new High Watermark Funds.
Target maturity funds, which are part of the broader set of asset allocation funds, have caught on with investors in wake of the stock market decline. They appeal to investors seeking simple investment solutions by offering a one-stop solution in the form of a portfolio with a target maturity date. The portfolio is rebalanced to a less conservative posture as that date approaches.
AIG SunAmerica mixed another now popular concept in with its funds however. Each of the funds (they come with 2010, 2015 and 2020 target dates), will also offer a guarantee return of principal plus any gains achieved to those shareholders who remain invested to maturity.
That structure mimics the guaranty fund design offered by a number of insurance companies. Like target maturity funds, guaranty funds have also been a hit with investors since 2000.
"These new Funds provide broad-based equity participation and, like other target maturity funds, are lower-risk, core investments that offer a selection of maturities," explained J. Steven Neamtz, President of AIG SunAmerica Capital Services, Inc.,
the distributor for AIG SunAmerica Mutual Funds. "What sets them apart is that the shareholder’s original investment is protected and investors are assured of locking in the highest Net Asset Value (NAV) attained during the life of the Fund if they
hold shares to maturity."
Neamtz added that AIG SunAmerica to help differentiate the High Watermark Fund's from other guaranty funds, it will adjusts NAV for dividends and extraordinary expenses. Other funds, he noted typically offer principal protection programs for only return of principal or principal plus a pre-determined rate.
The funds are backed by a financial instrument issued by Prudential Global Funding Inc., a subsidiary of Prudential Financial.
Quant shop Trajectory Asset Management developed a proprietary methodology that will be used to manage the portfolios. That model includes the use of index futures to achieve equity exposure and avoid security selection risk," said Juan Ocampo, president of Trajectory Asset Management. He added that the fixed income investments in the fund portfolios will also lessen volatility of the funds' value.
"With so many economic and geo-political forces constantly affecting the markets, investors have moved an increasingly high level of assets to the sidelines. We believe the High Watermark Funds provide investors the opportunity to put idle assets to work on an attractive risk adjusted basis," Neamtz added.
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