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Portfolio > Mutual Funds > Target Date Funds

SEC To Target 'Target Date Funds'

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In the near future, the Security and Exchange Commission will begin to focus on target date funds, according to an SEC official speaking at a conference in Phoenix, Ariz. this week.

Such funds are primarily marketed to participants in defined contribution retirement plans, says Commissioner Luis A. Aguilar in the text of his speech, as published on the SEC website. He indicates the products have had explosive growth, with assets in target funds registered with the SEC totaling approximately $240 billion by the end of 2009.

The funds are sold as a one-stop solution that bundles investment strategies within each respective fund, Aguilar says in the text. As the target date approaches, he says, the funds are supposed to decrease their equity allocations and shift toward fixed income, becoming more conservatively invested.

However, in 2008, some funds with near-term target dates “lost substantial amounts of money and these assumptions were called into question,” he continues.

“In fact, many investors were shocked by losses of 25%-30% in the average short-dated target date fund and almost 40% in the longer-dated funds.”

Concern exists that the use of particular dates “may mask the fact that funds with the same target date can differ dramatically in terms of glide path,” Aguilar surmises. Investors who only look at the target date “will most probably fail to assess whether the glide path suits their personal risk objectives,” he says.

In view of that, “the Commission should require that investors receive clear disclosure that appropriately lays out the crucial information,” he says in his published text.

In the text, Aguilar also alludes to problems arising from vague or misleading language used in marketing such funds.

The remarks were part of a speech given to the Investment Company Institute and Federal Bar Association Mutual Funds and Investment Management Conference in Phoenix, Ariz.


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