Morningstar Advisor - October/November 2009 - 20

Investment Briefs series that were studied (at least an 18-month history was required), says Josh Charlson, a Morningstar analyst who performed the study. “The difference between the cheapest and most expensive target-date series amounted to more than 120 basis points annually, an eyeopening disparity,” Charlson says. Sorting out target-date fund expenses can be tricky, in part because there are so many share classes, often aimed at different-sized retirement plans. Using the net prospectus expense ratio, Charlson selected the lowestcost share class from each series that holds at least 10% of total series assets to ensure a meaningful investor presence in that share class. Then, he averaged the expense ratio for the share class across all the funds in the lineup to get an overall average for the series. The cheapest funds by far, Charlson says, belong to the Vanguard Target Retirement Series, with an overall expense ratio of 0.19%. The Vanguard target-date funds, built on a foundation of its extremely low-cost index funds, are much less expensive than even the next closest index funds from Nationwide (0.65%) and Wells Fargo (0.67%), whose fund expenses do rank favorably compared with the target-date universe as a whole. Among actively managed offerings, American Century Livestrong is the cheapest option, with a 0.67% expense ratio, on par with the indexed series from Wells Fargo. Bunched closely behind are TIAA-CREF Lifecycle, T. Rowe Price Retirement, and Fidelity Freedom. With the exception of TIAA-CREF, all these fund families have eliminated the so-called overlay fee, a management fee that sits over the fees on the underlying funds, common among target-date funds. Other firms, such Schwab and John Hancock, mix index funds with active strategies in order to achieve some cost efficiencies. The priciest target-date offerings are run by advisor-sold Franklin Templeton (1.27%) and Oppenheimer (1.44%). “The cost structures may be inherently higher at firms like these Target-Date Strategies, Ranked by Expense Ratio Strategy Name Selected Share Class Avg Expense Ratio % Management Style Oppenheimer Transition Series Franklin Templeton Retirem Series BlackRock Lifecycle Prepared Series Seligman TargetHorizon ETF Series Payden/Wilshire Target Date Series MFS Lifetime Series Guidestone Funds MyDestination Series ING Solution Series AIM Independence Series MainStay Retirement Series State Farm Lifepath Series Vantagepoint Milestone Series Fidelity Advisor Freedom Series Putnam RetirementReady Series John Hancock Lifecycle Series AllianceBernstein Retirement Str Series MassMutual Destination Series Principal LifeTime Series DWS LifeCompass Series Barclays Global Inv LifePath Series RiverSource Retirement Plus Series Goldman Sachs Retirement Str Series Columbia Retirement Portfolios JPMorgan SmartRetirement Series American Funds Trgt Date Rtrmt Series Schwab Target Series Fidelity Freedom Series TIAA-CREF Lifecycle Series T. Rowe Price Retirement Series American Independence NestEgg Series Wells Fargo Advantage DJ Target Date Ser American Century LIVESTRONG Series Nationwide Target Destination Series Vanguard Target Retirement Series Morningstar data. A A A A No Load R3 GS4 S A I Inst No Load A Y 1 K S Instl S I Y Instl Z Instl A No Load No Load Retirement No Load I I Instl Instl No Load 1.44 1.27 1.24 1.20 1.15 1.13 1.10 1.07 1.06 1.04 1.04 1.02 0.97 0.94 0.93 0.92 0.88 0.88 0.87 0.85 0.85 0.83 0.82 0.79 0.71 0.71 0.69 0.69 0.69 0.68 0.67 0.67 0.65 0.19 Active Active Active Passive Mixed Active Active Active Mixed Active Passive Mixed Active Active Mixed Active Active Active Mixed Mixed Active Active Active Active Active Mixed Active Active Active Passive Passive Active Passive Passive 20 Morningstar Advisor October/November 2009
Morningstar Advisor - October/November 2009

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