PLANSPONSOR - February/March 2018 - 6

TDF Analysis
Tactical Latitude
T
raditionally, the asset-allocation
strategy for a target-date fund
(TDF) has been rigid-relying on
the fund's predetermined glide path to
dictate how its asset allocation changes
over time to or through its target date.
The glide path structure is intended
to automatically, progressively, reduce
Tactical Allocation Approaches
Investment Manager*
AllianceBernstein
Allianz
AmericanFunds
BlackRock
Fidelity
Goldman Sachs
Invesco
John Hancock Investments
J.P. Morgan
MassMutual
Nationwide
Nuveen TIAA
Putnam
Russell Investment Management
T. Rowe Price
USAA
Voya Investments
Wells Fargo
*All managers listed use a tactical deviation. †
Spotlighting industry data from PLANSPONSOR's proprietary research
the riskiness of the portfolio, shifting
to more bonds and income-producing
assets and away from volatile areas of the
stock market as the investor approaches
retirement.
This practice proved challenging
for some investors to stomach during
the 2008 and 2009 recession, and
some managers began to consider how
to adjust their portfolios to meet such
market conditions.
To increase flexibility in an asset
Allows for Deviation
On # of Fund Options
2 of 2
2 of 2
1 of 1
1 of 3
4 of 6
1 of 1
1 of 1
3 of 3
5 of 5
1 of 1
1 of 1
1 of 2
2 of 2
1 of 1
4 of 4
1 of 1
4 of 4
2 of 3
-75% in severe downturns.
Source: 2017 PLANSPONSOR Target-Date Fund Buyer's Guide
Deviation Allowed
10%
30%
5%
10%
10%
10%
Unspecified
10%
5% - 20%
-5%
5%
5%
15%
3%
5% - 10%
10%
6%
10%; 15%†
allocation, some fund managers added
the capability to employ a specifically
chosen tactical deviation-typically
from 5% to 10%-into their strategies.
By way of this deviation, the investment
manager can adjust a portfolio's asset
allocation based on short- to intermediate-term
market conditions, either to
increase or reduce equity exposure. This
allows fund managers to manage more
actively.
Of fund managers listed in the
2017 PLANSPONSOR Target-Date Fund
Buyer's Guide, 55% employ a tactical
deviation.
Of the top five target-date fund
suites by market share, Fidelity, T. Rowe
Price and J.P. Morgan, respectively, allow
for the use of this strategy. The other
two, Vanguard and Principal Global
Investments, also respectively, do not.
All (and only) managers that use
a tactical deviation appear in the chart.
Of the 18 fund managers that allow for
the deviation, 78% may deviate from the
glide path in all of their target-date fund
suites, while 23% use a deviation in some
offerings and not others.
Critics say using a tactical deviation
changes a fund's risk profile and that the
funds' risks and returns no longer align
with participant expectations. Others
say that top providers' deviations are too
weak when markets suffer significant
losses.
All target-date fund series are built
uniquely. Careful analysis is key to
choosing the best fund for your participants.
-Judy Faust Hartnett
6 PLANSPONSOR.com February-March 2018
http://www.PLANSPONSOR.com
PLANSPONSOR - February/March 2018

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