How “Fantastic” Are Your Target Date Funds? | Capital Group

How “Fantastic” Are Your Target Date Funds?

March 2017

How “Fantastic“ Are Your Target Date Funds?

A target date series is only as good as its underlying funds. This infographic illustrates how “Fantastic” the underlying funds of the American Funds Target Date Retirement Series℠ have been.

  • Rigorously screened — Morningstar® applied strict criteria to almost 8,000 funds to create its latest “Fantastic” list. Only 45 funds made the grade, and 11 of those were American Funds.
  • The most “Fantastic” funds — All 11 of our “Fantastic” funds are in our target date series* — giving our series more “Fantastic” underlying funds than any other.
  • Consistently “Fantastic” — In all five years of Morningstar’s list, at least half of the underlying equity funds in our target date series have been deemed “Fantastic.”
TDF_Fantastic 45_Infographic-image

Source: Morningstar, Fund Spy article, September 13, 2016. Morningstar evaluated funds based on criteria including manager ownership, fund results and expense ratios, as well as Morningstar risk, analyst and parent ratings.

Morningstar’s criteria are as follows (fund eligibility changes as criteria change, as noted in brackets): (1) Fund must have outperformed its prospectus benchmark over the tenure of the longest tenured manager; minimum of five years required. Test was run using returns through August 2016; (2) expenses must be in cheapest quintile of category; (3) Parent Grade must be positive [2012: neutral or better]; (4) manager investment in fund must be more than $1,000,000 [2012-2014: $500,000]; (5) fund must be a “medalist”(rated Bronze, Silver or Gold) [2012: n/a]; (6) Morningstar Risk rating must be below High [2012-2013: n/a]. Using these criteria, the tool filtered 45 out of nearly 8,000 funds, excluding true institutional funds [2012: no exclusion for institutional funds], for all share classes in Morningstar database, as of August 2016; 11 of the 45 were American Funds. Additional criteria: 2012—positive people score required; 2015—cheapest retail share class selected; 2016—returns over benchmark gauged vs. category benchmark, not prospectus benchmark.

1 Not all 11 funds listed in the “Fantastic 45” are in each target date fund. Underlying funds may change over time.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. 

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. 

Each target date fund is composed of a mix of the American Funds and is subject to the risks and returns of the underlying funds. Underlying funds may be added or removed during the year. Although the target date funds are managed for investors on a projected retirement date time frame, the funds' allocation strategy does not guarantee that investors' retirement goals will be met. The target date is the year in which an investor is assumed to retire and begin taking withdrawals. American Funds investment professionals manage the target date fund's portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the fund gets closer to its target date. Investment professionals continue to manage each fund for 30 years after it reaches its target date. 

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.