Not all target-date funds are built alike.

J.P. Morgan’s latest update to its Ready! Fire! Aim? research series makes the case for why its propriety approach to TDF design bests other strategies.

The asset manager’s SmartRetirement fund series throws just about every asset class under the sun into its TDF recipe, which is designed toward generating the highest income replacement rate possible in retirement, while exposing investors to a relatively low level of equity exposure throughout the funds’ glide path.

In fact, the SmartRetirement equity exposure looks downright conservative throughout its glide path relative to some strategies.

Read: Just offering target-date funds not enough for recordkeepers

At age 65, around 35 percent of assets are allocated to domestic and foreign stocks.

That’s compared to both aggressive and concentrated TDF strategies, both of which keep upwards of 60 percent of assets in equities at retirement, according to J.P. Morgan’s modeling.

In fact, J.P. Morgan’s equity exposure at retirement is just a bit more than what is allocated in a typical conservative approach to TDF design.

But a typical conservative approach utilizes about six asset classes, whereas the SmartRetirement series deploys up to 14 asset classes.

So how does J.P. Morgan’s strategy fare when it comes to replacing income in retirement?

Not bad, according to the firm’s proprietary research of its proprietary fund series.

The firm benchmarks performance by establishing a 77 percent income replacement rate goal for a worker earning $85,000 a year, running statistical simulations on 10,000 participants that have a full range of savings habits.

It then tests those savings habits against varying TDF strategies, accounting for stock market rallies and crashes all along.

Conservative TDFs and concentrated TDFs—the latter pairs relatively high equity exposure and is focused on core asset classes—were able to achieve a successful income replacement rate 65 and 68 percent of the time, respectively.

Those were the poorest results of the four strategies compared. The conservative strategy suffered for its high exposure to fixed-income; the concentrated strategy suffered for its high exposure to equities.

Under the best market condition simulations, an aggressive TDF design returned the most to investors.

But when accounting for market volatility and less-than-ideal savings habits, J.P. Morgan’s SmartRetirement strategy proved most productive, getting more people to a 77 percent income replacement rate, based on its broad diversification and “dynamic risk management” approach.

“Should the role of a target-date fund be to strive to secure as high a return as possible for participants even if it means that a larger number risk falling short in adequate funding levels? Or is it more prudent to ensure as great a number of participants as possible reach safe funding levels?” ask the study’s authors.

“We believe the latter is far more important,” says J.P. Morgan’s TDF investment team.

Last year was a strong one for the SmartRetirement series, which saw $9.7 billion in new flows through November 2015, the second largest behind Vanguard’s Target Retirement Funds, which scored $33.4 billion new flows, according to Morningstar data.

J.P. Morgan makes no mention of fees in the study.

Presumably, incorporating more assets into its strategy comes at some cost to participants.

According to J.P. Morgan’s website, an A share of the SmartRetirement 2015 Fund costs investors 81 basis points.

According to Vanguard’s website, a no-load share of the Target Retirement 2015 Fund costs investors 14 basis points.

Instant Insights /

JP Morgan makes its case for diversification in TDFs

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