Do Target Date Mutual Funds Meet Their Targets?

Document Type

Article

Publication Date

12-1-2017

Abstract

We investigate the effectiveness of target date mutual funds (TDMF) performance relative to naive self-directed target date portfolios and identify which variables are related to positive performance. Overall, we find target date mutual funds do not outperform naive strategies but find several characteristics which are associated with positive Sharpe and Treynor ratio performance. When comparing TDMF to naive strategies, we find alpha, volatility, assets, dividend yield and turnover are positive and significant coefficients, while beta is negative and significant. Variables such as Morningstar rating and expense ratio are not significant, and puzzling given fees on TDMFs are typically higher than other funds. Investors are choice architects will be interested in the results as both are in some ways responsible for making good retirement investment choices. The paper also identifies the difficulty in using tools developed for all equity mutual funds to measure the unique aspects of TDMFs, specifically the glide path.

Publication Title

Journal of Asset Management

Volume

18

Issue

7

First Page

566

Last Page

579

Link to Full Text

Find in your library

Share

COinS