Target-date, or life-cycle, funds have been around since 1993. They appeal to investors seeking a “set it and forget it” approach to retirement saving that can simplify their investment decisions.
The funds have been enormously popular since their introduction. There are now over 250 target-date/lifecycle funds available, and according to the Investment Company Institute, the funds had attracted more than $185 billion by the first quarter of 2008; almost 90 percent of that amount was held in retirement accounts.
During the current market downturn, these funds have been drawing criticism over their asset allocations, however. Several of the largest funds with maturity dates of 2010 had equity allocations of 50 percent or more, including a healthy dose of international holdings. Consequently, many of these largest funds in the 2010-category had year-to-date losses of 20 to 30 percent through October.
Although the funds’ losses are relatively less than those experienced in the broad U.S. and global markets, some sources in the financial news media are beginning to question the wisdom of the underlying investments.
In spite of the challenging environment, Van Kampen Funds, a unit of Van Kampen Investments, recently announced the launch of the Van Kampen Retirement Strategy Funds, a new series of target-date funds. The funds bring together Van Kampen and Russell Investments, a well-known leader in third-party manager selection.
The series consists of nine funds with target retirement dates from 2010 to 2050 (in five-year increments) and an “In Retirement” fund.
Each fund is structured as a fund-of-funds, investing primarily in a combination of Van Kampen-managed mutual funds and multi-firm managed funds advised by Russell Investments.