Opinion

John Wasik

Column: Despite risks, retirement savers plow into target-date funds

May 8, 2013 12:12 UTC

CHICAGO (Reuters) – A torrent of money flowing into target-date funds suggests many retirement investors may be ignoring the risks of this key category.

These funds now represent the second-most-popular allocation after U.S. large-stock funds within defined-contribution plans like 401(k) accounts, according to pension consultant Callan Associates. Target-date assets have climbed above $500 billion, attracting $16 billion in the first two months of 2013 alone, according to Strategic Insight.

Target-date funds combine several mutual funds within one package and are managed so that they move to less risky postures as their shareholders move closer to retirement. That movement – usually from stocks to bonds – is called the fund’s “glide path.” The funds take aim at specific future dates, and investors are expected to buy the fund that matches their own retirement date.

Investors may find themselves automatically invested in these funds: Target-date funds are approved by the U.S. Department of Labor as a default choice in 401(k)s, so some plan managers use them whenever they automatically enroll employees.

All that might suggest the funds are fairly risk-free. But while diversification strategies can reduce risk, they don’t eliminate it. Some target-date funds are much more volatile than others, depending upon their allocation. Their internal risks are poorly understood, fund expenses are high and they yield varying results. Here’s what investors may be missing:

Despite risks, retirement savers plow into target-date funds

May 8, 2013 11:59 UTC

CHICAGO, May 8 (Reuters) – A torrent of money flowing into
target-date funds suggests many retirement investors may be
ignoring the risks of this key category.

These funds now represent the second-most-popular allocation
after U.S. large-stock funds within defined-contribution plans
like 401(k) accounts, according to pension consultant Callan
Associates. Target-date assets have climbed above $500 billion,
attracting $16 billion in the first two months of 2013 alone,
according to Strategic Insight.

Target-date funds combine several mutual funds within one
package and are managed so that they move to less risky postures
as their shareholders move closer to retirement. That movement -
usually from stocks to bonds – is called the fund’s “glide
path.” The funds take aim at specific future dates, and
investors are expected to buy the fund that matches their own
retirement date.

Two ways to play the retail rebound

May 3, 2013 15:06 UTC

CHICAGO, May 3 (Reuters) – With consumer stocks blazing this
year, it makes sense for investors to focus on retailers as the
U.S. economy continues an inchworm-like recovery. But retail is
a fickle business. And trying to guess which companies will
survive over the long-term is a dangerous game.

Instead of buying individual stocks, you’d be better off
owning an exchange-traded fund of retailers benefiting from a
revival of consumer spending, employment, home wealth and
economic growth. Two of the top three sectors in the economy
have been consumer discretionary products and staples, which
include the stock of both manufacturers and retailers. The
sectors have gained 14 percent and 17 percent year to date,
respectively, through May 1, according to Standard & Poor’s. The
other top sector was healthcare.

There are four exchange-traded funds that focus on the
retail group. I like two of them, for different reasons.

Spring cleaning for your portfolio

Apr 29, 2013 18:51 UTC

CHICAGO, April 29 (Reuters) – Whether you need to invest a
tax refund or simply want to see if you’re on track with your
investments, spring is a great time to get out the broom.

I needed to make a large contribution to my 401(k) to offset
some taxes recently, so I took the opportunity to see that my
portfolio is meeting my objectives.

In my case, I needed to do some rebalancing and check
returns of the funds I owned against benchmarks. Then I checked
to see if my funds tracked my long-term investment policy.

Column: Closed-end funds provide yield, but at a price

Apr 26, 2013 19:24 UTC

CHICAGO (Reuters) – Investors chasing yield in this low-rate environment are jumping into alternative vehicles. That’s helping closed-end income funds stage a comeback.

Such funds, which offer a fixed number of shares and are closed to new capital once they start operating, have their attractions, but investors should exercise caution. Expenses for closed-end funds tend to be higher than with exchange-traded funds, they are more complex and they usually carry more risk. Their active managers are free to use leverage and invest in a variety of assets in the hope of delivering higher returns than mutual funds with static bond mixes.

In 2008, initial public offerings of closed-end mutual funds fell off sharply, to just one, from about 30 the year before. They fell out of favor because of the market meltdown and other debacles. There were 11 in 2009, 12 in 2010, four in 2011 and 13 last year, according to Lipper, a Thomson Reuters company.

Closed-end funds provide yield, but at a price

Apr 26, 2013 19:15 UTC

CHICAGO, April 26 (Reuters) – Investors chasing yield in
this low-rate environment are jumping into alternative vehicles.
That’s helping closed-end income funds stage a comeback.

Such funds, which offer a fixed number of shares and are
closed to new capital once they start operating, have their
attractions, but investors should exercise caution. Expenses for
closed-end funds tend to be higher than with exchange-traded
funds, they are more complex and they usually carry more risk.
Their active managers are free to use leverage and invest in a
variety of assets in the hope of delivering higher returns than
mutual funds with static bond mixes.

In 2008, initial public offerings of closed-end mutual funds
fell off sharply, to just one, from about 30 the year before.
They fell out of favor because of the market meltdown and other
debacles. There were 11 in 2009, 12 in 2010, four in 2011 and 13
last year, according to Lipper, a Thomson Reuters company.

Bugged out on gold? Try REITs instead

Apr 22, 2013 20:23 UTC

CHICAGO, April 22 (Reuters) – In the wake of a dramatic gold
sell-off over the last two weeks, investors are looking for
other ways to hedge against inflation.

They are realizing that the metal is a false prophet of the
hyperinflation that gold bugs have been expecting since 2008.
It’s clear at this point that the scenario probably won’t
materialize in the immediate future. Assets of the SPDR Gold
Trust, the leading gold bullion exchange-traded fund,
have dipped to the lowest level since 2010 on a wave of
redemptions.

Gold, which on Monday traded $100 over a two-year low of
$1,321 on April 16, is also proving not to be a safe haven from
global economic woes. The metal was supposed to be a defensive
shadow currency in a world going to hell, but it turns out to be
highly volatile as well.

Customized green portfolios make more of a difference

Apr 19, 2013 15:05 UTC

CHICAGO, April 19 (Reuters) – Green stock funds have always
made me blue. There are dozens of socially responsible,
“clean-tech” or environmentally friendly mutual and
exchange-traded funds, but I have a hard time recommending them.
They are typically too expensive because of their fees, have
poor returns and are too concentrated in highly volatile stocks.

Take the PowerShares Wilderhill Clean Energy ETF,
which holds alternative energy/conservation companies based on a
56-stock index. At nearly $140 million in assets, it’s one of
the most popular green funds. Yet volatility and poor
performance in the portfolio’s solar and other alternative
energy stocks have produced awful total returns.

The PowerShares fund is down 24 percent and 27 percent for
the three- and five-year periods through April 17. It has a 0.7
percent annual expense ratio, which is high for an index fund.
More than one-third of the portfolio is in “information
technology” stocks, a category that includes several battered
solar companies.

Thai stocks worth a look, but be cautious

Apr 16, 2013 19:13 UTC

CHICAGO, April 16 (Reuters) – Most emerging market talk
focuses on BRICS – Brazil, Russia, India, China and South Africa
- or maybe even TIMPs – Turkey, Indonesia, Mexico and the
Philippines. But one sizzling emerging market that has not been
adopted into an investing acronym is Thailand.

Thailand has been growing rapidly relative to sluggish
Western economies. Like its Southeast Asian cousins Indonesia,
Singapore and Vietnam, Thailand has a relatively young
population and a growing middle class, and it is building
infrastructure along with a commodities trade.

Thailand has had its political problems, including a coup,
in recent years, but now it is focused on an export economy,
driven by demand from China and India. Global investors are
attracted to the country’s cornucopia of natural resources such
as alumina, cocoa, gas, oil and sugar. Some 60 percent of the
Thai gross domestic product is export-driven, which also
consists of autos, rice and electronics.

High costs dim appeal of multi-asset funds

Apr 12, 2013 19:10 UTC

CHICAGO (Reuters) – On paper, multi-asset funds look great. These tactical “fund of funds” let an investor cover objectives ranging from inflation protection and income to international growth, while enabling managers to diversify quickly and avoid market sell-offs.

On the market for years, multi-asset funds have gained traction since the 2008 financial crisis. They have come into focus lately because many retirement plans have added them to their line-ups.

If the funds performed their jobs well at a low cost, then they would make sense to me. Picking a diverse mix of asset classes is challenging, and it would be helpful to average investors to have it done for them.

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