Target-date exchange traded funds (ETFs) – all-in-one type funds that many investors have turned to for retirement savings – have recently come under the scrutiny of the Securities and Exchange Commission (SEC). Still, critics may not believe that regulators have been thorough enough.
The government promised to make “TDFs” less harmful to a retirement saver’s nest egg, writes Robert Powell for MarketWatch. The SEC delivered a 100-page report outlining its proposed new rules which would help “enhance investor understanding of target-date funds and reduce the possibility that investors will be confused or misled.” [What New Fee and Disclosure Proposals May Mean for ETFs.]
Under the new rules, target-date fund providers will need to provide a clearer picture of what investors are buying, which includes a graphic depiction of asset allocations from inception to the target-date fund.The SEC also reminds investors to keep an eye on investments instead of sticking to a set-and-forget mindset. [Why ETFs Make Sense in Retirement.]
Target-date funds invest in a mix of stock, bond and money-market funds. Over the period in which the fund is active, stock funds usually dominate the portfolio but reduce in weighting as the target-date fund approaches maturity, also known as a “glide path.” The main problem is that different funds may have different glide paths and asset allocations, even if they have the same target dates, or maturity dates.
A few industry experts praise parts of the SEC’s proposed rules, commenting that the changes for advertising and enhanced disclosure in TDFs are a step in the right direction. Furthermore, the proposal to include the ending asset allocation in the fund is also a prudent move, since investors would know when a fund reaches its most conservative investing mix.
However, there are those who believe the SEC didn’t act forcefully enough, even suggesting that the SEC should prohibit providers from using the phrase “target date” in a fund name.
For more information on target-date funds, visit our target-date ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.