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Are there any 2035 target funds that are actively managed?

Are there any 2035 target funds that are actively managed and strategically re-balanced more than quarterly to adapt to changing global markets? If not, are there a few funds that would accomplish the same goal of having a holistic portfolio while not overly specializing on a particular industry or region? Are we now back to age-old general "growth" funds?

In general, I really like the "idea" of a target fund, but I'm disappointed that they are not more actively managed. It seems that many fund producers look at the target fund as a easy way to re-package their house funds with a basic age appropriate "investment mix" and nothing more.

May 15, 2012 by Dave from Osseo, MN in  |  Flag
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17 votes
Don Level 19

Hi Dave, I think what you are trying to find in a target date fund runs contrary to the very reason these were created, which is to provide investors with a simple one-stop investment that evolves over time in a fairly predictable way. Indeed, I don't think any fund that was as actively managed as you suggest would make it as a qualified default investment alternative in a retirement plan, which would limit its marketability greatly. So I don't expect you to find such a fund.

All of the TDFs I am aware of are funds of funds, meaning the degree to which they are active is limited by the degree to which the underlying funds are themselves active. The best of the TDF series in my opinion are Vanguard and T. Rowe Price. Vanguard employs only index funds and, as a result, has rock bottom expenses (< 20 bps) whereas T. Rowe Price funds will be almost all actively managed and have higher expenses (~ 73 bps). But the asset allocations to each of those funds is NOT actively managed to the extent you desire.

You could consider a "balanced fund" that is actively managed and suits your overall risk profile. The upside of these is that they invest across all asset classes and could be a one-stop investment for you - for a time. The downside is that their allocations don't naturally become more conservative over time. This means every 5 to 10 years you might be searching for a new, more conservative investment. But your only other alternative is to put your money with an investment manager, which may not be a bad idea if you have enough assets.

1 Comment   |  Flag   |  May 15, 2012 from Middlebury, VT
Dave

Great points Don... Ideally I would like something like the Investment Manager option but for a 401k.

Flag |  May 16, 2012 near Osseo, MN

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10 votes

Dave - I think you answered your own question in your last sentence. Consider that most Target Date funds are constructed with underlying mutual funds that represent the different stock and bond markets to which the fund manager thinks you should have exposure (there are some Target Date funds that have other asset classes, but the vast majority are built from stocks and bonds). To the extent that the underlying funds are actively managed, the Target Date fund is actively managed. You can see an x-ray of the underlying holdings of almost any Target Date fund at www.morningstar.com. Target Date funds re-balance their mix on a schedule, usually quarterly so you really have two levels of "active" management in many Target Date funds - management in the individual funds and management at the Target Date fund level via re-balancing. (Vanguard offers Target Date funds as well but many of their mutual funds are passively-managed index funds so arguably you would not be getting the same level of active management in a Vanguard Target Date fund, but the difference is probably immaterial). Assuming you have a choice of fund families, check the funds' underlying holdings before making a decision. Target Date funds are marketed as "one size fits all" and I believe such marketing gives investors a false sense of security (hope?). You can get a sense of my meaning by checking the returns of Target Date funds in 2008. Lastly, Target Date funds are fundamentally flawed in that the investor has no idea of what is going on in the underlying funds. Caveat emptor.

Comment   |  Flag   |  May 15, 2012 from Redmond, WA

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6 votes
George Cones, JD Level 20

Most of the target date funds that we have seen are on a glide path, that is they are mechanically reallocated as they approach their target date. Target date funds tend to have higher expense ratios as well. You may be able to build your own diversified portfolio, but If you are talking about your 401(k) plan, your choices may be limited. There are actively managed models, that are part a 401(k) plan structure, but they are not easy to find.

Comment   |  Flag   |  May 15, 2012 from Wilmington, DE

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3 votes

Hi Dave, The Fidelity 2035 Fund, FFTHX, is a fund of funds, made up primarily of actively managed funds. You can find more information at Fidelity at this web site: http://fundresearch.fidelity.com/mutual-funds/composition/315792655 Good luck and make sure to do your research.

1 Comment   |  Flag   |  May 15, 2012 from St Charles, IL
Dave

Thanks for the response Craig, your statement is probably true for most target funds. I was wondering if there were any funds where the mix of funds (in the target fund) are actively managed? TRRJX seems to be a good alternative to FFTHX.

Flag |  May 16, 2012 near Osseo, MN

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