PLANADVISER - March/April 2018 - 10

investment focus
Tactical Latitude
Target-date funds that let managers deviate from the glide path
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, lower
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.
Some fund
managers added
the capability to
employ a specifically
chosen tactical
deviation-typically
from 5% to 10%-
into their strategies.
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
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.
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. †
Allows for Deviation on
# of Fund Options Deviation Allowed
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
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
10%
30%
5%
10%
10%
10%
Unspecified
10%
5% - 20%
-5%
5%
5%
15%
3%
5% - 10%
10%
6%
10%; 15%†
10 | planadviser.com march-april 2018
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PLANADVISER - March/April 2018

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