Is your "index" target date fund performing like its index?
Key considerations for establishing an index target date fund's composite benchmark and for managing the index TDF portfolio.
- Investors in an index target date fund (TDF) should expect performance that closely tracks a composite benchmark representing the fund’s strategic asset allocation.
- Our review of realized performance among several prominent index TDFs shows that some managers have delivered on this expectation more effectively than others.
- In our view, managers have realized disparate outcomes primarily because of differences in implementation processes, capabilities, and skill.
- The implementation process for a TDF includes two key components that require investment insights and skill: (1) establishing a composite benchmark and (2) management of the portfolio.
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