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Portfolio > Mutual Funds > Equity Funds

New Tool Examines Target-Date Funds

By Ed McCarthy, CFP, RICP

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According to the Investment Company Institute, lifecycle funds or target-date funds (TDFs) have continued to grow. The funds managed $185 billion at the end of the first quarter of 2008, compared to $183 billion at the end of the fourth quarter of 2007. Almost 90 percent of assets in lifecycle funds were held in retirement accounts, making these funds an important component of many retirement savings plans.

TDFs with the same target date can have significant differences in their portfolios and in their performance. Analyzing those differences to identify appropriate funds can be a time-consuming process for advisors, but a new tool from JP Morgan Funds could make the review process more efficient.

The company recently launched Target Date Navigator, an evaluation process to assist advisors who work with JP Morgan and their plan sponsor-clients in identifying TDFs that are most closely aligned to a plan’s goals and participants’ savings behaviors. According to JPMorgan Funds, Target Date Navigator is the first framework to map out the TDF universe, categorizing funds according to their investment composition and glide path strategy.

Because TDFs generally differ according to their investment time horizons and level of asset-class diversification, this tool helps advisors and sponsors determine which funds might best fit the particular needs and the goals of each retirement plan. Target Date Navigator should also guide advisors and their plan sponsor clients to help ensure that fiduciary responsibilities are being addressed and that plans are compliant with qualified default investment alternative (QDIA) guidelines.

“Considering the dramatic differences between target date funds and their status as a critical retirement savings tool, it is clearly important for plan sponsors to understand and consider all criteria when choosing a fund,” says David Musto, managing director, JPMorgan Funds.

The TDF-identification process requires inputs from the plan sponsor and participants, including questions on participants’ risk tolerance, desired levels of diversification, and so on. The inputs are used to develop a profile of a TDF that would best meet the sponsor’s goals.

The Target Date Navigator illustrates how the profiled fund fits on a grid with quadrants that rank diversification versus equity levels. The profile’s results can then be graphically mapped against the characteristics of TDFs that JPMorgan has analyzed. The map of the fund offerings, based on diversification and percent of equity at retirement, will be updated quarterly by JPMorgan.

Advisors who wish to learn more about Target Date Navigator can call 1-877-576-4632.

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