There’s a big trend in the USA for target date retirement funds. These are managed funds whose goal is to provide funds for a specific date and the investment strategy is such that it invests in equities in the early part and progressively switches to bonds through to maturity whereby the majority of funds will be invested in bonds (or at least a large proportion). The logic appears sound whereby take all the risk when there’s lots of time before expiry and reduce the equity market risk as the target date approaches. Given the dissatisfaction of the ‘set and forget’ asset allocation approach, will Target Date Funds become the next big thing in Australia?
Either way, they are loaded with efficiency problems and although Vanguard appear to supportive of them there’s 2 academics in Queensland currently doing some interesting papers on these funds, Professor Michael Drew and Dr Anup Basu, and exposing some of their problems. Look out for their upcoming paper in the Journal of Portfolio Management.