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Legg Mason Total Advantage Funds®
Performance Update 1Q19 This is an introductory presentation to financial institutions concerning the Legg Mason Total Advantage Funds. The Funds are collective investment funds available exclusively to qualified retirement plans and have been established by Wilmington Trust, N.A. as trustee, and subadvised by QS Investors, LLC. The information contained herein is preliminary and subject to change. This presentation does not constitute an offer to sell or a solicitation to buy an interest in the Funds. Any such offer or solicitation will be made, if at all, only pursuant to the Funds’ governing trust documents and Investment Policy Statement. This presentation is qualified in its entirety by such materials. Starting November 5th, 2018, Retirement Keeper will be applied to funds 5 years before their target retirement date and will continue in perpetuity thereafter as well as to the Total Advantage Retirement Fund at all times. Prior to November 5th, 2018, Retirement Keeper is applied only for the period of 5 years before and 5 years after a fund’s target retirement date and is not applied to the Total Advantage Retirement Fund during any period. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Market Overview Global equities across the board rose during the first quarter of the year In the U.S., large caps had one of its best quarterly performances in a decade, rising 13.6% China had the strongest performance of the major equity regions, rising 17.9% The VIX ended the quarter at 13.7, a 46.1% drop versus year end 2018 After dropping 38% in the prior quarter, crude oil rebounded with a 32% upswing The rebound came from tighter global supply conditions, with the U.S. reducing its drilling, Venezuelan sanctions and outages which restricted port loadings and crude production and Saudi Arabia affirming their commitment to cutting oil output The 10-year Treasury yield dropped 28 basis points and finished at just over 2.4% The Federal Reserve’s dot plot now suggests zero rate hikes in 2019, versus the expectations of two in the prior quarter Global central banks increasingly became more dovish throughout the quarter, with the ECB and BOJ both reaffirming their negative interest rate policies and continued stimulus Past performance cannot guarantee future results. Investing involves risk and may result in a profit or a loss. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Legg Mason Total Advantage Funds: A Target Date Solution
Designed to solve for two critical objectives, often at odds with one another: Help boost return potential for investors saving for retirement Manage volatility and market risk to help minimize their impact on hard-earned savings Benefits are driven from five key features: * 1 Retirement Keeper refers to the Dynamic Risk Management Period of the Strategy. In rapidly declining markets, significant losses will likely occur. Conversely, when markets are rapidly accelerating, market appreciation may not be fully realized due to the Portfolio’s more conservative allocation. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Adaptive Asset Allocation Total Advantage Funds Glidepath
Designed to counter market risk, inflation risk and longevity risk Generally higher allocation to equity assets A “through” retirement solution, actively managed 25 years after retirement Conversion to Static Portfolio Inflation Risk Stable Value The glidepath shown here highlights a key feature of the LMTAFs Retirement Keeper is a unique risk management feature that we believe is a key differentiator for the Funds It is active during the years when an investor is most vulnerable to large equity market losses – the five years before and five years after retirement Retirement Fixed Income Equity Legg Mason TAF 96 78 54 34 Vanguard 90 74 50 30 Fidelity Freedom 53 24 T. Rowe Target Retire 65 43 26 American Funds 88 81 47 39 % EQUITIES Allocations subject to change. Source: QS Investors, Morningstar. For illustrative purposes only. Please see page 13 for more information regarding the comparison Funds displayed in the above chart. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Performance Summary Expense Ratios 3 Months Since Inception¹ Inception Date Net Gross Return (%) Legg Mason Total Advantage 2015 R6 7/27/2018 0.36 0.38 7.07 1.51 S&P Target Date 2015 TR USD 6.89 1.61 Legg Mason Total Advantage 2020 R6 6/15/2018 0.39 7.45 0.59 S&P Target Date 2020 TR USD 1.36 Legg Mason Total Advantage 2025 R6 0.42 0.43 8.78 1.48 S&P Target Date 2025 TR USD 8.37 0.91 Legg Mason Total Advantage 2030 R6 0.44 0.45 9.50 1.41 S&P Target Date 2030 TR USD 9.39 Legg Mason Total Advantage 2035 R6 0.49 0.50 10.40 0.84 S&P Target Date 2035 TR USD 10.27 -0.13 Legg Mason Total Advantage 2040 R6 0.51 0.52 11.21 S&P Target Date 2040 TR USD 10.82 -0.47 Legg Mason Total Advantage 2045 R6 0.53 11.90 0.46 S&P Target Date 2045 TR USD 11.10 -0.69 Legg Mason Total Advantage 2050 R6 12.06 0.65 S&P Target Date 2050 TR USD 11.28 -0.85 Legg Mason Total Advantage 2055 R6 12.08 S&P Target Date 2055 TR USD 11.31 -0.89 Legg Mason Total Advantage 2060 R6 12.07 S&P Target Date TR USD 11.42 -0.86 Legg Mason Total Advantage Retirement R6 0.27 0.28 5.51 2.81 S&P Target Date Retirement Income TR USD 5.57 2.03 Q1 was a period of strong performance, compared to the benchmark In the 1st quarter, 10 of 11 vintages beat or matched their benchmark The performance picture also strong when we examine the period since all 11 vintages were live (July 30, 2018) with 9 out of 11 vintages ahead of their benchmark The Second component of the Adaptive Asset Allocation feature is a tactical asset allocation component We call this Tactical Accelerator It’s purpose in the Funds is to boost return above what is generated by the underlying funds How does it work? It is a multi-factor model that forecasts the relative performance between stocks and bonds Uses 4 factors that our multi-asset researchers believe has strong predictive power w/r/t these assets +/- 10% stocks and IG bonds Expressed synthetically through equity and UST futures – inexpensive, good liquidity, keep your coupon and dividend Performance shown is gross of any advisory fees.² The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The investment return and unit value of the Funds will fluctuate, and units may be worth more or less than their original cost when redeemed. Returns for periods less than one year are cumulative. Performance would have been lower if fees and expenses had not been waived in various periods. Total returns assume the reinvestment of all distributions at net asset value and deduction of all CIF expenses. Performance for other unit classes will vary due to differences in class expenses. 1 Since Inception performance reflects the performance since the first day that all of the vintages went live (7/30/2018) ² See end disclosures for information regarding the effect of fees. Source: QS Investors, Morningstar. As of March 29, 2019 FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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US SA Target Date Retirement
Peer Rank Summary Morningstar Category 3 Months Since Inception¹ Peer Percentile Legg Mason Total Advantage 2015 R6 US SA Target Date 2015 34 71 Legg Mason Total Advantage 2020 R6 US SA Target Date 2020 45 82 Legg Mason Total Advantage 2025 R6 US SA Target Date 2025 38 Legg Mason Total Advantage 2030 R6 US SA Target Date 2030 48 36 Legg Mason Total Advantage 2035 R6 US SA Target Date 2035 54 Legg Mason Total Advantage 2040 R6 US SA Target Date 2040 35 Legg Mason Total Advantage 2045 R6 US SA Target Date 2045 40 Legg Mason Total Advantage 2050 R6 US SA Target Date 2050 21 32 Legg Mason Total Advantage 2055 R6 US SA Target Date 2055 47 Legg Mason Total Advantage 2060 R6 US SA Target Date 2060+ 41 28 Legg Mason Total Advantage Retirement R6 US SA Target Date Retirement 64 26 Q1 was a period of strong performance, compared to the peer group In the 1st quarter, the average Morningstar peer group ranking was 42nd percentile The performance picture also strong when we examine the period since all 11 vintages were live (July 30, 2018) During both periods, the average Morningstar peer percentile ranking was 42nd The Second component of the Adaptive Asset Allocation feature is a tactical asset allocation component We call this Tactical Accelerator It’s purpose in the Funds is to boost return above what is generated by the underlying funds How does it work? It is a multi-factor model that forecasts the relative performance between stocks and bonds Uses 4 factors that our multi-asset researchers believe has strong predictive power w/r/t these assets +/- 10% stocks and IG bonds Expressed synthetically through equity and UST futures – inexpensive, good liquidity, keep your coupon and dividend 1 Since Inception performance reflects the performance since the first day that all of the vintages went live (7/30/2018) Source: QS Investors, Morningstar. As of March 29, 2019 FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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1Q19 Attribution and Underlying Fund Performance
Bottom 5 holdings returns Top 5 holdings returns Fund 1Q19 Return (%) ClearBridge Small Cap CIF R-LM 17.79 MassMutual Select Growth Opps I 16.90 MassMutual Select Fundamental Growth I 16.29 MassMutual Select Blue Chip Growth I 16.09 ClearBridge Large Cap Growth CIT R-LM 15.84 Fund 1Q19 Return (%) WTNA Stable Value 0.57 Brandywine Glbl Inv Grade Sovereign Fxd 2.82 MassMutual Premier Infl-Prot and Inc I 3.05 BlackRock TIPS (Treasury Infl-Protected) 3.23 Western Asset Core Plus Bond CIT R-INT 3.84 4Q18 Attribution Absolute Returns All of the underlying holdings had positive absolute returns Strongest returns were across U.S. small and large cap growth funds The best performing vintages were the ones with the highest equity exposure Relative Returns Outperformance across the vintages versus the S&P Target Date benchmarks, but the Retirement Fund was the lone underperformer Overweight to U.S. equities positively contributed to performance, this was partially offset by manager selection (funds underperforming their benchmark) within international equities While stable value had positive performance during the quarter, this was largely offset by under-allocating to U.S. IG bonds, which returned more than stable value Tactical asset allocation positively contributed to performance during the quarter As of March 29, 2019 The attribution figures above are based on the Fund’s holdings and do not reflect fees or expenses of the Fund. Had fees or expenses been reflected returns would have been lower.¹ These figures are for analytical purposes only and do not represent the Fund’s average annual total return. This information should not be construed as investment advice or recommendations with respect to the sectors listed. Holdings shown may not be representative of the portfolio manager’s current or future investments and are subject to change at any time. Past performance is not a guarantee of future results. Source: QS Investors, Morningstar, Northern Trust ¹ See end disclosures for information regarding the effect of fees. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Tactical Positioning and Outlook
QS investors’ tactical stock-bond model active on all 11 vintages Forecasts probability stocks will outperform bonds in the short-term future Four factor model: Leverage: growth of debt and equity in the economy Valuation: Modified Fed model comparing earnings yield (stocks) to bond yield (U.S. 10Y) Leading economic indicators: composite of indicators that lead recessions Interest rate trend: direction of the U.S 10Y Time series of the Average Drawdown Forecast overtime While it is comprised of 5 factors, there actually over 100 points of data underlying the output End Q Stock bond positioning: Modestly in favor of Stocks Q1 2019 Bonds Stocks Signal Strength (++) (+) (+/-) Leverage Valuation LEI I.R. Trend Signal Strength: (+/-) = Moderate (+) = Positive (++) = Highly Positive Source: QS Investors As of March 29, 2019 Past performance is no guarantee of future results FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Retirement Keeper: Risk Management
Retirement Keeper (active on RETIREMENT, 2015 and funds) In place to mitigate the effects of steep, prolonged downturns in the stock market Volatility cap of 11.5% in place, with potential to be lowered based on other risk signals 2015 and 2020 vintages began de-risking in late December 2018, entering the new year with decreased equity exposure of 5.7% and 10.4% In February, the de-risking was taken off for both the 2015 and 2020 funds, as the equity market’s volatility declined 1Q 2019 Retirement 2015 2020 SP500 % equity 32.6% 46.2% 50.3% – % fixed income 67.4% 53.8% 49.7% End Q4 Risk 4.6% 6.5% 7.1% 14.1% End Q4 Cap 10.8% De-risking? No Time series of the Average Drawdown Forecast overtime While it is comprised of 5 factors, there actually over 100 points of data underlying the output Review of risk factors utilized Equity volatility: a measurement of price fluctuations of the U.S. stock market: Normal Probability of recession: data on employment, industrial production, income growth, manufacturing and trade: Normal Leading economic indicators: economic data that tends to lead economic recessions: Normal Leverage growth: growth of total equity and debt in the U.S. economy: Normal National financial conditions: U.S. financial conditions in money markets, debt and equity markets: Normal Equity risk premia: concentration of key equity factors: Normal Versus one-year prior, equity risk premia was the factor that deteriorated the most, however it still looks healthy Source: QS Investors As of March 29, 2019 Retirement Keeper refers to the Dynamic Risk Management Period of the Strategy. In rapidly declining markets, significant losses will likely occur. Conversely, when markets are rapidly accelerating, market appreciation may not be fully realized, due to the Portfolio’s more conservative allocation. * Starting November 5th, 2018, Retirement Keeper will be applied to funds 5 years before their target retirement date and will continue in perpetuity thereafter as well as to the Total Advantage Retirement Fund at all times. Prior to November 5th, 2018, Retirement Keeper is applied only for the period of 5 years before and 5 years after a fund’s target retirement date and is not applied to the Total Advantage Retirement Fund during any period. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Legg Mason Total Advantage Funds Asset Allocation
Allocations subject to change. Past performance cannot guarantee future results. Source: QS Investors. For informational purposes only. FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Disclosures All investments involve risk, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. Fixed income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. High-yield bonds possess greater price volatility, illiquidity and possibility of default. In addition to the Funds’ operating expenses, you will indirectly bear the operating expenses of the underlying funds. The Funds and each underlying fund may engage in active and frequent trading, resulting in higher portfolio turnover and transaction costs. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The model used to manage a Fund’s assets provides no assurance that the recommended allocation will either maximize returns or minimize risks. There is no assurance that a recommended allocation will prove the ideal allocation in all circumstances. In rapidly declining markets, significant losses will likely occur. Conversely, when markets are rapidly accelerating, market appreciation may not be fully realized due to a fund’s more conservative allocation. In addition, because the portfolio invests in underlying funds, QS Investors may not be able to shift allocations in time to capture an immediate or sudden spike in the market. Additional risks may include those risks associated with investing in real estate, commodities and private equity. Please see the Funds’ Investment Policy Statement for more information regarding risks associated with investing in the Funds. While an investor’s retirement age is a central component in deciding which series option is right for the investor, other relative factors should also be considered. For instance, an investor’s individual circumstances, long-term investment goals and risk tolerance – and especially if the investor falls between two retirement years – should all be carefully considered. These and other factors, as well as the Funds’ risks, should be discussed with an investor’s financial professional. Investments in target date options are not guaranteed and investors may experience losses, including losses near, at, or after the target date. Additionally, there is no guarantee that investments in these options will provide adequate income at and through retirement. All investments involve risk, including possible loss of principal. ©2019 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and QS Investors, LLC are subsidiaries of Legg Mason, Inc. Wilmington Trust, N.A. Collective Investment Funds are trust company-sponsored collective portfolios; they are not mutual funds. The Funds and units therein are exempt from registration under the Securities Act of 1933, as amended, and the Investment Company Act of Wilmington Trust, N.A. serves as the Trustee of the Wilmington Trust Collective Investment Trust and maintains ultimate fiduciary authority over the management of, and investments made in, the WTNA Collective Investment Funds. Participation in the Funds is limited primarily to qualified defined contribution plans and certain state or local government plans. Investors should consider the investment policy, objectives, risks, charges and expenses of any pooled investment company carefully before investing. The Additional Fund Information and Principal Risk Definitions Booklet contains this and other information about a Collective Investment Trust Fund and is available at This document should be read carefully before investing. Investments in the Fund are not insured by the FDIC or any other government agency, are not deposits of or other obligations of or guaranteed by Wilmington Trust, or any other bank or entity, and are subject to risks, including possible loss of the principal amount invested. The information in this material has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions, estimates and projections constitute the judgment of Wilmington Trust and are subject to change without notice. This material is for educational purposes only and is not intended as an offer, recommendation or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. There is no assurance that any investment strategy will be successful. Diversification does not ensure a profit or guarantee against a loss. Past performance is no guarantee of future results. Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., M&T Bank and certain other affiliates, provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other services. Wilmington Trust Corporation and M&T Bank Corporation are not affiliated with Legg Mason, Inc. Third-party trademarks and brands are the property of their respective owners. Investments: Are NOT Deposits | Are NOT FDIC-Insured | Are NOT Insured By Any Federal Government Agency | Have NO Bank Guarantee | May Go Down In Value 11 FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Important Information
These materials were prepared for you, at your request, and without regard to the specific objectives, financial situation or needs of any particular person who may receive it. It is intended for informational purposes only and it is not intended that it be relied on to make any investment decision. It does not constitute investment advice or a recommendation or an offer or solicitation and is not the basis for any contract to purchase or sell any security or other instrument, or for QS Investors to enter into or arrange any type of transaction as a consequence of any information contained herein. QS Investors does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. Except insofar as liability under any statute cannot be excluded, no member of QS Investors, or any officer, employee or associate accepts any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this document or any other person. This document is only for professional investors. No further distribution is allowed without prior written consent of QS Investors. Past performance or any prediction or forecast is not indicative of future results. No representation or warranty is made as to the efficacy of any particular strategy or the actual returns that may be achieved. The value of shares/units and their derived income may fall as well as rise. An investment is not a deposit and is not ensured by the Federal Deposit Insurance Corporation or any other government agency or by QS Investors or any of its affiliates, and is subject to risks, including possible loss of principal amount invested. For performance shown gross of fees, investment management and other fees were not deducted. In the event that such fees were deducted, the performance of an account would be lower. For example, if an account appreciated by 10% a year for five years, the total annualized return for five years prior to deducting fees at the end of the five-year period would be 10%. If total account fees were 0.10% for each of the five years, the total annualized return of the account for five years at the end of the five-year period would be 9.89%. Fees are described in Part 2A of QS Investors’ Form ADV. Any forecasts provided herein are based upon our opinion of the market as of this date and are subject to change, dependent on future changes in the market. In preparing this presentation, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. We consider the information in this update to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of composite performance or suitability for investment. Our investment strategies utilize proprietary research and quantitative tools to analyze securities and help us make investment decisions. While we maintain controls reasonably designed to protect the integrity and efficacy of the quantitative models and data used to formulate investment decisions, we can make no guarantee that the models and data will remain accurate and/or produce the desired or intended results over time. Index providers (e.g., S&P, Russell Investments, MSCI Barra and FTSE) are the sources and owners of any index data contained or reflected in this document and all trademarks and copyrights related thereto. Unless otherwise indicated, this is QS Investors’ presentation of the underlying index data. Such data may include a redefinition of index sector and regional groupings in accordance with QS Investors’ unique classifications. The index providers are not responsible for the formatting or configuration of this material or for any inaccuracy in presentation thereof. Please note an investor cannot directly invest in an index, and unmanaged index returns do not reflect fees, expenses, or sales charges. 12 FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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Competitor Fund Disclosures
Vanguard Target Retirement Funds Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date. These fund suggestions are based on an estimated retirement age of approximately 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation. Fidelity Freedom® Funds Designed for investors who anticipate retiring in or within a few years of the fund's target retirement year at or around age 65. Investing in a combination of Fidelity domestic equity funds, international equity funds, bond funds, and short-term funds (underlying Fidelity funds), each of which (excluding any money market fund) seeks to provide investment results that correspond to the total return of a specific index. Allocating assets among underlying Fidelity funds according to a "neutral" asset allocation strategy that adjusts over time until it reaches an allocation similar to that of the Freedom Index Income Fund approximately 10 to 19 years after the target year. Ultimately, the fund will merge with the Freedom Index Income Fund. FMR Co., Inc. (the Adviser) reserves the right to modify the fund’s neutral asset allocations from time to time when in the interests of shareholders. Buying and selling futures contracts (both long and short positions) in an effort to manage cash flows efficiently, remain fully invested, or facilitate asset allocation. The Adviser may use an active asset allocation strategy to increase or decrease neutral asset class exposures reflected above by up to 10 percentage points for Equity Funds (includes domestic and international equity funds), Bond Funds and Short-Term Funds to reflect the Adviser's market outlook, which is primarily focused on the intermediate term. The asset allocations in the "Choosing a Freedom Fund" section above are referred to as "neutral" because they do not reflect any decisions made by the Adviser to overweight or underweight an asset class. The investment risk of each Fidelity Freedom Fund changes over time as its asset allocation changes. These risks are subject to the asset allocation decisions of the Investment Adviser. Pursuant to the Adviser's ability to use an active asset allocation strategy, investors may be subject to a different risk profile compared to the fund's neutral asset allocation strategy shown in its glide path. The funds are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, commodity-linked and foreign securities. Leverage can increase market exposure, magnify investment risks, and cause losses to be realized more quickly. No target date fund is considered a complete retirement program and there is no guarantee any single fund will provide sufficient retirement income at or through retirement. Principal invested is not guaranteed at any time, including at or after the funds' target dates. T.Rowe Target Retirement Funds The principal value of the Retirement Funds and Target Funds (collectively the "target date funds") is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The target date funds' allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The Retirement Funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term retirement withdrawal horizon. The Target Funds emphasize asset accumulation prior to retirement, balance the need for reduced market risk and income as retirement approaches, and focus on supporting an income stream over a moderate postretirement withdrawal horizon. The target date funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The key difference between the Retirement Funds and the Target Funds is the overall allocation to equity; although they each maintain significant allocations to equities both prior to and after the target date, the Retirement Funds maintain a higher equity allocation, which can result in greater volatility over shorter time horizons. Diversification cannot assure a profit or protect against loss in a declining market. American Funds Target Date Retirement Funds Depending on the proximity to its target date, the fund will seek to achieve the following objectives to varying degrees: growth, income and conservation of capital. The fund will increasingly emphasize income and conservation of capital by investing a greater portion of its assets in bond, equity income and balanced funds as it approaches and passes its target date. In this way, the fund seeks to balance total return and stability over time. 13 FOR INSTITUTIONAL USE ONLY. NOT FOR USE WITH PLAN PARTICIPANTS OR THE GENERAL PUBLIC.
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