While hybrid mutual fund and annuity product solutions began gaining advisers and investors attention last year, such managed payout funds still have flaws. Thats according to a report from MarketWatch.
The biggest problem is that in down markets, many of these funds have to eat away at their principal in order to honor payment guarantees. As MarketWatch puts it, They may be eating themselves alive.
The truth of the matter is, said Dan Wiener, editor of The Independent Adviser for Vanguard Investors, These funds just havent been making money.
But analysts cut Vanguard some slack in saying that the funds launched at a turbulent time for the market and that over time, their design might prove wise. The problem at the outset, however, is that the bear market is reducing the principal amount significantly, lowering future returns.
On the other hand,
Its a solution that gives investors a peace of mind about income that will last a certain amount of time, said Allan Telenko, a vice president and product manager at Fidelity.