Returns on target-date funds continue to disappoint, with the five largest 2010 funds trailing the S&P 500 by 11 percentage points since the markets March 9 low. They are up an average of 25% since that date, well below the benchmark indexs 36% rise, The Wall Street Journal reports.
Many managers of target-date funds continue to defend and maintain their considerable equity exposure, despite the fact that 2010 target-date funds lost an average of 25% last year, with one plummeting as much as 40%. The managers say the markets crash in 2008 was an anomaly and that in order for people to have enough money to last 30 years in retirement, equity exposure of 50% or higher is necessary.
Put another way, the five biggest 2010 target-date funds are down 29% since October 2007, when the market first began wavering, and year-to-date through June 30, they are down 16%. The five largest funds with a later target-date, the 2040 funds, are down even more year-to-date, 26%, due to a higher allocation to stocks.
Commenting on the fund managers apparent reluctance to change course, Dallas Salisbury, president of the Employee Benefit Research Institute, commented: The industry has no consensus on what the problems are or if there are problems. If the industry cant agree on any of that, the obvious answer is that it doesnt think there is a problem and wont pursue other approaches.