CHICAGO, March 15 /PRNewswire-FirstCall/ -- Morningstar,
Inc. (Nasdaq: MORN), a leading provider of independent investment
research, today announced findings from its 2010 Target-Date Series
Industry Survey, which draws on Morningstar's extensive research on
20 of the largest target-date series. The survey documents trends
in target-date fund design, costs, and asset flows since the 2008
market downturn as well as target-date strengths, weaknesses, and
returns to investors. It also offers an examination of target-date
fund disclosure, and an analysis of the performance of fund series
using proprietary, or in-house, versus independent managers in
target-date fund construction.
"Target-date funds have been the subject of unprecedented
regulatory, governmental, and media criticism in the wake of 2008's
market slide, but that has not deterred millions of investors from
making these funds the centerpiece of their retirement savings.
According to our data, more than $45
billion in new cash flowed into these funds in 2009," said
Laura Pavlenko Lutton, editorial
director for Morningstar's mutual fund research group. "Target-date
funds have become the retirement vehicle of a generation, and for
some good reasons. The funds have structural advantages over
traditional mutual funds, including generally lower costs and
dynamic asset allocation that automatically grows more conservative
as investors age."
Within the survey, Morningstar examined investor returns, which
represent a typical shareholder's experience. Investor returns
reflect monthly flows in and out of funds, and the returns earned.
With target-date funds, investor returns over the past three years
exceeded the funds' total returns in every target-date category
except for one, and far exceeded a shareholder's experience owning
a traditional mutual fund.
"Mutual fund shareholders usually reward funds that treat them
well by staying put, and investors have been successful owners of
target-date funds over the past three years," Lutton added.
Investors may have turned a deaf ear to criticism of target-date
funds, but many fund companies haven't. Two general trends emerged
in this year's survey. First, Morningstar found there was a general
move among the fund families in the survey to cut costs by lowering
expense ratios or introducing cheaper indexed series. Second,
several fund series took steps to reduce risk by lowering the
funds' equity allocations, which caused steep losses in 2008.
Others introduced or increased exposure to subasset classes that
they hope will smooth returns.
"Lower fees directly benefit investors, but changes to the
funds' equity exposure could leave the industry open to charges
that it's fighting the last market battle, and not positioning the
funds correctly for the future. Indeed, some funds that were
aggressively positioned in 2008 were whipsawed when they turned
conservative prior to the market rebound in 2009," Lutton
added.
In the Target-Date Survey, Morningstar also examined whether
"open architecture" series had a performance advantage. About a
third of target-date series Morningstar evaluated features open
architecture, or managers who are independent of the fund's
advisor. In the aftermath of the market downturn, some members of
Congress and the media questioned series that use only proprietary
managers, but the Morningstar survey showed no advantage or
disadvantage to open architecture.
In addition, the survey covered disclosure and manager
investment. Specifically, Morningstar examined whether fund
companies provided the disclosure recommended by its own industry
association, the Investment Company Institute, as well as details
necessary to understand the target-date funds' potential risks and
rewards. Morningstar also looked at fund managers' level of
personal investment in their funds to determine if the fund
managers' own financial interests were aligned with
shareholders'.
"Investors should remain concerned about the flimsy public
descriptions of how target-date funds are run and the low absolute
levels of manager investments in the funds," Lutton added. "It's
critical for individuals to easily understand their target-date
fund's goals, strategy, and risks, and it's important for fund
managers to have some skin in the game. Many fund families still do
not meet what we would consider to be basic levels of disclosure
and manager investment."
In addition to the Target-Date Series Industry Survey,
Morningstar provides ratings and research reports for target-date
fund series. Launched in September
2009, Morningstar evaluates target-date fund series on five
components—People, Parent, Performance, Portfolio, and Price.
People and Parent ratings are determined by both qualitative and
quantitative measures of the funds' management and stewardship
processes. Performance, Portfolio, and Price ratings use
quantitative measures to evaluate the quality of both the
target-date funds and the underlying holdings in which they invest
as well as the cost that investors must pay. Morningstar assigns
one of five ratings for each component: Top, Above Average,
Average, Below Average, or Bottom. Based on the five component
ratings, each target-date fund series earns an overall rating using
the same grade scale.
Morningstar Target-Date Fund Series Ratings and Research Reports
are available in Morningstar® Principia®, Morningstar® Advisor
Workstation(SM) Enterprise Edition, Morningstar® Direct(SM),
Morningstar® Office, Morningstar® Site Builder(SM), and through
licensed data feeds. Morningstar.com, the company's Web site for
individual investors, publishes the ratings and a modified version
of the report.
To access Morningstar's Target-Date Fund Industry Survey, please
visit http://global.morningstar.com/2010TargetDateSurvey. For more
information about Morningstar's Target-Date Fund Series Ratings and
Research Reports as well as a copy of last year's Industry Survey,
please visit http://global.morningstar.com/TargetDateReports.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent
investment research in North
America, Europe,
Australia, and Asia. The company offers an extensive line of
Internet, software, and print-based products and services for
individuals, financial advisors, and institutions. Morningstar
provides data on nearly 350,000 investment offerings, including
stocks, mutual funds, and similar vehicles, along with real-time
global market data on more than 4 million equities, indexes,
futures, options, commodities, and precious metals, in addition to
foreign exchange and Treasury markets. The company has operations
in 20 countries and minority ownership positions in companies based
in two other countries.
©2010 Morningstar Inc. All rights reserved.
MORN-R
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Contact:
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Alexa Auerbach,
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SOURCE Morningstar, Inc.