Folio Investing’s Target Date Folios Outperform Traditional Target-Date Funds

Firm seeks fund companies to distribute its folios

Folio Investing, a division of the online brokerage FOLIOfn Investments, announced Friday that over the five years since they were brought to market, its target date folios have “significantly outperformed” traditional target-date funds.

During the tumultuous five-year period since being created in December 2007, the folios have provided both higher returns and lower volatility than competing funds, the McLean, Va.-based firm said.

Steven Wallman, founder and CEO of Folio, who’s also a former SEC commissioner, said in a statement that the performance of the target date folios over the past five years “proves that improved design and better diversification actually do provide tremendous value.” Investors “deserve better” than traditional target-date funds, Wallman said.

Folio Investing is currently looking to partner with fund companies that will help distribute its lineup of target date folios, Wallman added. “Target date folios can be offered not only as ‘folios’, which are unique to the Folio Investing platform, but broadly as collective investment trusts and mutual funds,” he said. 

Folio Investing listed a comparison of how its target date folios have performed over the past five years compared to traditional target-date funds. 

  • An investment of $100,000 in the 2025 Moderate Target Date Folio since its inception on Dec. 21, 2007, would have been worth $116,900 at the end of December 2012, while the same investment in the three largest target-date fund families’ 2025 target-date funds would be worth an average of only $110,800. 
  • An investment of $100,000 in the 2045 Moderate Target Date Folio since its inception on Dec. 21, 2007, would have been worth $112,300 at the end of December 2012, while the same investment in the three largest target-date families’ 2045 target-date funds of $100,000 would be worth an average of only $106,300. 

The Target date folios’ outperformance, the company said, can be attributed to the following “design initiatives pioneered and proven valuable” by Folio Investing. 

  • A broader, more robust diversification strategy. Many target-date funds’ returns are, effectively, simply a blend of a U.S. bond index and a U.S. equity index fund, such as the S&P 500. When the stock market is especially volatile, though, such a portfolio is also still volatile. Target date folios include not just U.S. stocks and bonds, but also commodities, REITs, Treasury inflation protected securities (TIPS) and other asset classes.  Theoretically, the result should be lower volatility and higher returns at any given risk level. And that’s what Folio Investing’s target date folios have proven over the last five years.    
  • Greater choice and customization. Target date folios come in conservative, moderate and aggressive risk levels for each target year, and uniquely can be further customized by investors or advisors as they see fit.
  • Intelligent risk targeting, not simple asset allocation. Target date folios target specific risk levels over time.  By contrast, target-date funds traditionally target specific asset allocations over time. But when market conditions change adversely, clinging to defined asset allocations means investors are exposed to far more risk than expected.  Target date folios, instead, use a changing asset allocation as the means to achieving targeted risk levels, as opposed to the asset allocation being the end itself.
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