Morningstar Magazine - June/July 2018 - 61
EXHIBIT 3
Little Consistency Different target-date series got return boosts from different components.
Average Components of Returns for Select Target-Date Mutual Fund Series in Excess of Vintage Averages
Series
p Market (%) p Style (%) p Selection (%)
American Century One Choice
-0.52
1.18
-0.19
American Funds
0.03
0.00
0.93
BlackRock LifePath
0.19
0.13
0.28
Fidelity Freedom
0.28
-0.39
0.48
Great-West Lifetime
0.44
0.38
-0.21
JPMorgan SmartRetirement
0.28
0.92
-1.10
Principal LifeTime
-0.17
0.21
-0.46
T. Rowe Price
0.17
-0.01
0.22
TIAA-CREF Lifecycle
0.37
-0.72
0.48
Vanguard
-0.03
0.08
0.42
-1.20%
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Source: Morningstar
beyond the glide path to truly understand the
risks of a target-date series. The equity allocation
doesn't provide much differentiation among
target-date funds today. Other factors, such
as asset-class allocation and investment selection,
play greater roles in determining the risk/
return profile of a fund or series. Definedcontribution plan sponsors and their consultants
should focus on these factors to better
understand the risk/return profile of a targetdate series. K
David Blanchett, Ph.D., CFA, CFP, is head of retirement
research with Morningstar Investment Research.
Paul D. Kaplan, Ph.D., CFA, is director of research with
Morningstar Canada.
Both are members of the editorial board of Morningstar
magazine.
References
Blanchett, D. & Kaplan, P.D. 2018. "Beyond the Glide Path:
The Drivers of Target-Date Fund Returns." The Journal of
Retirement, Vol. 5, No. 4, pp. 25-39.
Brinson, G.P., Hood, L.R., & Beebower, G.L. 1986.
"Determinants of Portfolio Performance." Financial Analysts
Journal, Vol. 42, No. 4 (July/August), pp. 39-48.
Fama, E.F. & French, K.R. 1993. "Common Risk Factors
in the Returns on Stocks and Bonds." Journal of Financial
Economics, Vol. 33, pp. 3-56.
Ibbotson, R.G. & Kaplan, P.D. 2000. "Does Asset Allocation
Policy Explain 40, 90, or 100 Percent of Performance?"
Financial Analysts Journal, Vol. 56, No. 1 (January/
February), pp. 26-33.
global.morningstar.com/Morningstarmagazine
61
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