Another fund company that specializes in active management isout defending its approach in target-date funds.

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Boston-based MFS Investment Management has built its boutiquebrand on its active approach to management over 90 years.

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These days, active advocates are competing againsta seemingly unending chorus of passive proponents, of course.

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That passive drumbeat may be adversely impacting sponsors’ andplan advisors’ decisions on TDFs, according to data recentlypublished by MFS.

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The firm’s 2015 Defined Contribution Investment Trends studyshows both sponsors and advisors are keyed in onlowering costs.

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That should surprise no one familiar with the DC industry. Butthe study also showed sponsors are placing a high priority onshort-term performance when selecting funds.

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About 60 percent of sponsors said they looked at a track recordof three years or less when selecting funds, and nearly 75 percentsaid they put a manager on review for underperforming peers over aone to three year basis.

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“That’s a pretty short leash,” writes Ryan Mullen, head ofdefined contribution investments at MFS, in a blog post.

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Moreover, it could be contrary to the interests of target dateinvestors, who can have a long time horizon, and the fiduciaryinterests of sponsors.

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In Mullen’s view, the effectiveness of a target-date strategycan only accurately be gauged over a full market cycle--throughboth a bull and bear market.

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That cycle typically takes a lot longer than three years, notesMullen.

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On the matter of fees, cheaper does not always mean better,particularly when it comes to TDFs, thinks Mullen.

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“While minimizing costs for participants is certainly important,portfolio construction and active risk management may have agreater impact on improving long-term results,” he wrote.

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A look at MFS’s Lifetime 2015 fund clearly shows that active innot synonymous with aggressive.

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As of the end of January, the fund held a 71 percent allocationin fixed income, with 25 percent in equities, most of that in U.Sstocks.

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Compare that to Vanguard’s Target Retirement 2015Fund, which holds about 49 percent of assets inindexed equity funds.

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Vanguard’s 2015 fund is passively managed, and holds a total offive underlying indexed funds, all pulled from the Vanguardfamily.

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MFS’s 2015 has 21 proprietary funds under the hood.

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Mullen argues that portfolio construction must be a fiduciaryconsideration when assessing one fund over another, particularly involatile markets, and particularly as glide paths near retirementage.

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He notes the performance of 2010 target-date funds during thefinancial crisis. Conservatively managed funds with a “toretirement” strategy suffered losses on average of 19.7 percent,while more aggressive strategies with a “through retirement”allocation suffered losses of more than 27 percent.

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No TDF is purely passively managed, says Mullen, making it moreincumbent on sponsors to make sure they’re taking a thorough lookunder the hood along with noting a fund’s price tag.

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“Active managers take a holistic approach to managing risk atboth the security and portfolio levels,” wrote Mullen.

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“With risk management embedded in their investment process and along-term focus, those managing active target-date funds look pastshort-term market movements and aim to mitigate volatility byfocusing on fundamentals and selecting investments that canpotentially hold their value through changing markets,” headded.

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And that’s something fiduciaries need to consider along withfees and short-term performance, lest they “miss the forest throughthe trees” by defaulting participants into the wrong target datestrategy, says Mullen.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.