401(k) Specialist Issue 1 - 2016 - 24

TARGET DATE FUNDS
T. Rowe Price
AT THIS POINT, the terms " glide path " and " T. Rowe Price "
might as well be synonyms. We'd be hard-pressed to think of
another company that's given us so much glide path information
over the years. We get it; they'd done a lot (and we mean a lot) of
research on the subject. The results speak for themselves. As we
said, think of sustainable glide paths, and T. Rowe price immediately
comes to mind.
" There are four drivers of target date fund performance, " says
high-profile T. Rowe target date manager Jerome Clark. " They are
glide path design, which is a critical component; how you then
diversify that glide path design; what you use from there-either
active, passive or enhanced performance, and lastly; whether or not
the target date provides for tactical allocation. "
T. Rowe Price, he claims, does well with all four. Other managers
aren't firing on all cylinders, but all four of T. Rowe's have
done well at different times.
" The biggest impact is with the first, which is the glide path
design. Together, the impact of the other three do not equal the
glide path design, although they are still very important. "
The company, of course, is known for having a higher than average
equity component, which Clark says is the biggest contributor
to its solid performance.
" We broadened our international allocations in 2007 into
emerging markets, beginning with 15 percent of our exposure and
eventually increased to 30 percent of our exposure, " he concludes.
" We also moved into international bonds. The underlying active
management has done very well. Our tactical allocating consists
of 18 sectors, both equity and fixed income, which we overweight
and underweight. "
Fidelity Investments
FOR FIDELITY, IT'S ALL ABOUT big data. Being the largest 401(k)
record keeper in the United Sates has its advantages. They're going
to be sure they use it wisely, for everything from examining participant
behavior to aiding in developing more customized target date
fund products.
" Right from the outset, we establish goals for the funds, which
are income replacement goals, " says Mathew Jensen, director of target
date strategies with investment behemoth Fidelity Investments.
" We have conducted a lot of research on income replacement. We
know retirees will have to replace about 50 percent of their pre-retirement
income. If the investor does their part in terms of saving
and we do our part, they'll have it. Retirement math is the driver
behind the numbers, and the math doesn't lie. "
As mentioned, Fidelity is the largest TPA in the United States,
and they incorporate the data they accumulate into the design of
their target date funds.
" We do a lot of research on loan behavior, for instance, and its
implications on successful outcomes, " he notes. " Under the heading
of personalization, we constantly ask ourselves how much more we
can know about participants. "
Fidelity then looks to the delivery of these funds, whether it's
fully active or fully passive mutual funds, separately managed accounts
or collective investment trusts.
" We want to make sure the investment techniques for defined
contribution plans are able to be implemented in target date funds
for decades, and are cost-effective with the necessary liquidity. "
For that last reason, Jensen concludes, Fidelity also does a lot of
research around risk capacity that incorporates behavioral economics.
" We're talking about people's retirement hopes and dreams, so
we have to know as much as we can. "
Jerome Clark
Target Date Manager
Mathew Jensen
Director of Target
Date Strategies
24 ISSUE 1 2016 | 401kSpecialistmag.com
http://www.401kSpecialistmag.com
401(k) Specialist Issue 1 - 2016

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