Do target date mutual funds meet their targets?

William F. Johnson () and Ha-Chin Yi ()
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William F. Johnson: University of Southern Mississippi
Ha-Chin Yi: Texas State University

Journal of Asset Management, 2017, vol. 18, issue 7, No 6, 566-579

Abstract: Abstract We investigate the effectiveness of target date mutual funds (TDMF) performance relative to naive self-directed target date portfolios and identify which variables are related to positive performance. Overall, we find target date mutual funds do not outperform naive strategies but find several characteristics which are associated with positive Sharpe and Treynor ratio performance. When comparing TDMF to naive strategies, we find alpha, volatility, assets, dividend yield and turnover are positive and significant coefficients, while beta is negative and significant. Variables such as Morningstar rating and expense ratio are not significant, and puzzling given fees on TDMFs are typically higher than other funds. Investors are choice architects will be interested in the results as both are in some ways responsible for making good retirement investment choices. The paper also identifies the difficulty in using tools developed for all equity mutual funds to measure the unique aspects of TDMFs, specifically the glide path.

Keywords: Target date; Retirement; Investing; Choice architects (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41260-017-0054-7

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