Top Target-Date Funds…Worse Than Ever!
If you have not tried the OnPointe Quick Score App which calculates a Risk Score, CAGR, Maximum Drawdown, and CALMAR Ratio (numbers used in this newsletter), click on the following link:
If you are sick and tired of Target-Date (T-D) funds, this is a newsletter you’ll enjoy with data you can use with clients.
To download a 12-page piece (no sign-up form required) with one-page OnPointe Risk summaries of each of the comparisons below, click on the following link:
What are T-D funds? They are mutual funds seeking to grow assets for a future target date. For example, someone who wants to retire in 13 years might use a 2035 T-D fund.
T-D fund assets are “supposed to” be managed in the fund to maximize growth and minimize loss in a manner that is prudent given the years left until the target is reached. A T-D fund’s risk tolerance is “supposed to” become more conservative as it approaches its target date.
The Best T-D Funds for 2022 and Beyond—Morningstar put out a piece ranking the top T-D funds. It’s a bit of an oxymoronic list because ALL (and I mean all) of the mutual funds are terrible.
Review of SIX of the top T-D Funds from the Morningstar list
I created a summary of SIX of the top T-D funds that Morningstar listed and it’s stunning how bad they are. The companies that offer them should put a “these are terrible” disclaimer on them.
OnPointe Risk Comparison—I put each of these funds into the OnPointe software and compared them to their closest benchmark (a 60/40 stock/bond mix for most) and the Peace of Mind WM multi-manager portfolio. The results are hard to believe.
The comparison includes CAGR, Maximum Drawdown, OnPointe Risk Score, and CALMAR Ratio. The comparison goes back to January 2016 and is for a “target date” of 2035.
What jumps out at you from the above chart?
1) The T-D funds have more risk, lower returns, and a lousy CALMAR Ratio as compared to a classic 60/40 mix of stocks/bonds. In other words, these “top” T-D funds S-U-C-K!
2) The POM WM multi-manager portfolio metrics DESTROY the T-D funds and are much better than the 60/40 mix.
CALMAR Ratio—to learn why CALMAR is my favorite investment metric and more about POMWM’s tactical portfolios, click on the following link (you can also get these portfolios in a TAMP!):
Newsletter takeaway? Good marketing usually will trump good products/solutions.
The mutual fund industry has done a terrific job of brainwashing consumers. They have brainwashed lazy pension fiduciaries into thinking that T-D funds are really good for consumers. They are NOT (and should not be used in pension plans)!
Advisors fight against the use of T-D funds and hopefully this article will help you combat the brainwashing that has taken place.
And if you want to offer a unique AUM platform that has portfolios that have some of the industry’s best CALMAR Ratios, you should definitely check out the POM WM multi-manager portfolios.
To read the Morningstar article, click here.