© 2020 Arizent. All rights reserved.

Folio Tops Peers, Seeks Distribution Partner

Register now

Higher returns with lower volatility over the past five tumultuous years.

That’s the claim from McLean, Va., based Folio Investing, which celebrated the recent fifth birthday of its target date Folios by pointing to its since-inception results, compared with those of the leading target date mutual funds.

“We’re proud of what we have done,” Steve Wallman, founder and CEO of Folio, said, “but we’re still small. In order to have a higher profile and reach a broader base, we want to partner with a large distribution firm.”

Target date Folios, like target date mutual funds, are designed for retirement planning. A 2025 Target Date Folio, for example, is meant for investors who expect to retire in 2025. According to Folio, a $100,000 investment in the 2025 Moderate Target Date Folio would have grown to $116,900 in the five years through 2012; the same investment in the three largest target date mutual fund families' 2025 target date funds would be worth $110,800, on average. Similar results have been posted by the other target date Folios, with lower volatility, the company stated.

Target date Folios focus on risk levels, rather than specific asset allocations. A quantitative asset allocation model projects risk and return for various asset classes and sub-classes, and also calculates the correlations between them. The goal is to find a blend of asset classes that can generate low correlations with each other, thus maximizing risk-adjusted returns for the total portfolio. ETFs are used to represent the chosen asset classes.

The resulting asset class mixes are reviewed periodically, often towards the end of each calendar year, and some changes may be made. “Recently, the changes have been minor,” said Wallman, a former SEC commissioner, “but there have been major revisions in the past. For example, we stopped including Malaysia when its correlation with other asset classes increased.”

The target date Folios for 2013 version kept most of the 2012 holdings while adding Brazil Index ETF and SPDR S&P International Utilities Sector ETF. The typical target date Folio has around 10 asset classes, more than many target date mutual funds. Blending multiple asset classes may help to reduce correlations and dampen volatility.

Folio has begun the hunt for a distribution partner, to increase its visibility in the target date arena. That partner might be a “large mutual fund complex,” as Wallman put it, with or without its own target date funds now.

“We also might partner with a company that manages collective investment trusts or an insurance company,” Wallman said. “A large employer that would offer target date Folios in its company-sponsored retirement plan also might be considered. We can work with more than one distribution partner.” Talks are under way with some potential partners, and Wallman is hopeful that more investors will soon be exposed to the Folio side of the target date story.

For reprint and licensing requests for this article, click here.