Target-date retirement funds are catching on at Barclay Global Investors, which announced that assets in those funds doubled in 2005. Barclays was the first to offer so-called lifecycle funds in 1993, and today manages close to $10 billion in that category, which is an increasingly popular option offered through many 401(k) plans.
"Today's workers have significant responsibility for their own retirement security," said Matthew Scanlan, who heads BGI's Americas institutional business. "Individuals want investment solutions that are appropriate, sensible and easy-to-understand, and the pre-determined objectives of lifecycle products make intuitive sense and allow people to make a single, powerful investment choice," he said.
According to the Lincolnshire, Ill.-based human resource consulting firm Hewitt, nearly 44% of younger employees selected lifecycle funds when designating allocations for their 401(k) plans, an increase of 4% over 2002. Hewitt estimated that there is a 57% chance that employees with less than one year in the workforce will choose to invest some or all of their assets in such plans.
BGI credits much of its growth to the inclusion of Real Estate Investment Trusts (REIT) and Treasury Inflation Protection Securities (TIPS) in their funds. "Adding asset classes that aren't highly correlated with equity markets is a good way to lower overall portfolio risk," Scanlan said.