Does your target date series have "Terrific" underlying strategies? | Capital Group

Defined Contribution Insights

November 2019

Does your target date series have "Terrific" underlying strategies?

A target date series is only as good as its underlying strategies. This infographic below illustrates just how "Terrific" the underlying strategies of American Funds Target Date Retirement Series® have been.

  • Rigorously screened — Morningstar applied strict criteria to 8,000 funds to create its latest list of "Terrific" funds. Only 28 funds made the grade, and six of those were American Funds.
  • The most recognized strategies — All six of our "Terrific" strategies are in our target date series — giving our series more recognized underlying strategies than any other.*

 


Six of the underlying strategies in American Funds Target Date Retirement Series were recognized on the Morningstar "The Terrific 28" list.

Passive funds are not managed to generate returns that exceed their benchmarks, so target date funds that have only passive underlying investments likely will not have funds on the Morningstar "Terrific" list.
In evaluating target date funds, investors should consider how the various features of each fund, including the underlying funds, investment results, expenses and glide path construction, apply to their personal situation.
Source: "2019 Target-Date Fund Landscape," Morningstar, Inc., as defined by assets under management as of December 31, 2018.


Rigorously screened by Morningstar

Morningstar evaluated 8,000 funds based on manager ownership, fund results and expense ratios, as well as Morningstar risk, analyst and parent ratings. Less than half of 1% made the "Terrific" list.


American Funds has more “Terrific" strategies than any other target date series

Six of the underlying equity-focused strategies in our Series made "The Terrific 28" listthe most of any target date series in the industry.*

As of September 30, 2019

*Not all six of the strategies are in each target date fund. Underlying funds may change over time.

Source: Morningstar, "Fundlnvestor: The Terrific 28," by Russel Kinnel, May 2019. Morningstar's criteria for the "Terrific" list include: expense ratio In the cheapest quintile, manager investment of more than $1 million in the fund, Morningstar Risk rating below the High level, Morningstar Analyst Rating of Bronze or higher, Parent rating of Positive, returns above the fund's benchmark over the manager's tenure for a minimum of five years, must be a share class accessible to individual investors, and no funds of funds. Each fund's results were evaluated based on share classes that were accessible to individual investors. American Funds Target Date Retirement Series invests in Class R-6 shares of the underlying American Funds. According to Kinnel's report, American Funds' "institutional and clean share classes would have gotten more funds through the tests." Not all six American Funds strategies are in each target date fund. Morningstar evaluated American Funds' Class A shares because they are most widely held by individual investors. Underlying funds may change over time. The list's criteria have changed over the years. Visit morningstar.com for more details.


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 mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer. 

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

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

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