Tactical Glide Paths
More TDF fund managers choose to deviate from a fund’s allocation.
Reported by Judy Faust Hartnett
“While most of the largest players design glide paths they can stick with, other managers are exploring ways to change their asset allocation in response to market changes,” says Alan Hess, senior analyst, U.S. fund research for Strategic Insights (an ISS company, like PLANADVISER).
Some of these fund managers have implemented tactical glide path deviation, allowing them to stray from the target mix if market changes suggest this is prudent. Fund managers must disclose this information if it is part of their investment strategy.
Not all fund managers use such a strategy. The 2019 PLANSPONSOR Target-Date Fund Survey showed an increase in the number of TDF products that permit the manager some tactical deviation from the glide path. There are now 42, up from 36 in 2017, when PLANSPONSOR last ran the survey.
When asked about her firm’s use of tactical deviation, Vice President of Product Strategy Lauren LaBarbera, with J.P. Morgan in New York City, said its tactical asset allocation process has existed since the inception of those particular funds. Tactical asset allocation “lets us react to significant market movements and gives us the ability to choose to rebalance or continue to maintain overweight or underweight positions in certain asset classes.”
Of the 10 fund managers with the largest assets (see chart), Strategic Insight found that only two managers, J.P. Morgan and John Hancock, have incorporated language into their target-date prospectuses that lets them alter glide path allocations; they may do this by up to 20%.
Tactical Deviations
| Tactical Glide Path Deviation |
Q2 2019 Assets $mm |
|
| Vanguard Group Target Retirement Funds | No | 470,000 |
| Vanguard Group Target Retirement Trusts | No | 311,000 |
| FIAM Target Date Blend CITs | No | 32,300 |
| FIAM Target Date Index CITs | No | 11,800 |
| Fidelity Advisor Freedom Funds | No | 18,300 |
| Fidelity Freedom Blend Funds | No | 3,600 |
| Fidelity Freedom Funds | No | 185,00 |
| Fidelity Freedom Index Funds | No | 34,800 |
| Fidelity VIP Freedom Funds | No | 3,100 |
| T. Rowe Price Retirement Blend Trusts | No | 1,051 |
| T. Rowe Price Retirement Funds | No | 120,081 |
| T. Rowe Price Retirement Hybrid Trusts | No | 12,983 |
| T. Rowe Price Retirement I Funds | No | 35,257 |
| T. Rowe Price Retirement Trusts | No | 89,776 |
| T. Rowe Price Target Funds | No | 2,145 |
| American Funds American Funds Target Date Retirement Series | No | 131,000 |
| JP Morgan JPMorgan SmartRetirement Blend Mutual Funds | Yes, 10%–20% | 6,858 |
| JP Morgan JPMCB SmartRetirement Commingled Funds | Yes, 10%–20% | 6,895 |
| JP Morgan JPMCB SmartRetirement DRE Commingled Funds | Yes, 7%–20% | 15,633 |
| JP Morgan JPMorgan SmartRetirement Mutual Funds | Yes, 10%–20% | 46,992 |
| JP Morgan JPMCB SmartRetirement Passive Blend Commingled Funds | Yes, 10%–20% | 17,614 |
| Nuveen TIAA-CREF Lifecycle Funds | No | 32,927 |
| Nuveen TIAA-CREF Lifecycle Index Funds | No | 20,822 |
| BlackRock LifePath Dynamic | No | 1,300 |
| BlackRock LifePath Index | No | 189,200 |
| BlackRock LifePath Smart Beta | No | 146 |
| Principal Global Investments Principal LifeTime Funds | No | 22,317 |
| Principal Global Investments Principal LifeTime Hybrid CITs | No | 40,570 |
| Principal Global Investments Principal LifeTime Hybrid Funds | No | 1,515 |
| John Hancock Investments John Hancock Multi-Index Lifetime Portfolios | Yes, 10% | 1,493 |
| John Hancock Investments John Hancock Multi-Index Preservation Portfolios | Yes, 10% | 7,609 |
| John Hancock Investments John Hancock Multimanager Lifetime Portfolios | Yes, 10% | 7,208 |
| American Century One Choice Target Date Portfolios | Yes | 15,897 |
| American Century Retirement Date Trust | Yes | 7,348 |
Data as of year-end 2017
Source: BrightScope, a business unit of Institutional Shareholder Services (ISS)
Source: BrightScope, a business unit of Institutional Shareholder Services (ISS)