Target-date funds were widely praised by Morningstar analysts during the research firms opening festivities at its investment conference in Chicago Wednesday. The research round table, moderated by John Rekenthaler, Morningstar’s vice President of new product development, included The Fund Spy Russel Kinnel, as well as Hal Ratner, Dan Rohr and Laura Pavlenko Lutton.
After detailing their research processes on find companies, managers and stewardship grades, the conversation briefly turned to target-date funds and their place in 401(k)s. Their approval was near-unanimous.
“We see target date fund investors In particular, behaving very well. Especially in 2008, they did not panic and reached the rebound of 2009,” Lutton said.
Kinnel agreed, noting that “TDF investors received far and away the best returns” over the past few years, and credited the funds “boring structure” for the absence of fear and greed on the part of investors that generally leads to self-destructive behavior.
“We heard around 1999 and 2000 how supposedly 401(k)s were deficient and investors would be the first to crack, and that the savings vehicle wasn’t structured properly and it would hold up,” Rekenthaler concluded . “But the opposite was actually true. TDFs were strongly positive through 2008 and 401(k) investors stayed put more so that other types of investors. This is something that analysts and researchers are now studying.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
