Next-Generation Target Date Investments Outperform Traditional Funds

ETF-Based Approach Offers Custom Risk Levels, from "Conservative" to "Aggressive"

MCLEAN, Va., Feb. 17, 2011 /PRNewswire/ -- A series of Target Date investments based on an innovative asset allocation strategy significantly out-performed the industry over the past three years, while delivering more personalized risk levels for investors, according to FOLIOfn Investments Inc.  

The brokerage firm launched its series of Target Date Folios in late 2007.  The goal was to provide better asset diversification and more rigorous risk management than traditional Target Date Funds, which have been the focus of some criticism in recent years. The Target Date Folios are composed of exchange-traded funds (ETFs), and were designed from the start with multiple risk levels -- conservative, moderate and aggressive -- to better match the specific needs of investors.  Since 2007 retail investors have had access to the Target Date Folios through online brokerage Folio Investing, and they are available to financial advisors and 401(k) plans through asset custody unit Folio Institutional.

A comparison of annualized returns shows that the 2010, 2020, 2030 and 2040 Moderate Target Date Folios have outperformed the average corresponding Target Date Funds by more than 2% per year, even after applying a higher-than-likely 1% reduction in return to cover brokerage and other costs.*

For a detailed comparison of annual and cumulative results, see Folio Investing's briefing paper, A Better Approach to Target Date Strategies.

These results were achieved during a 36-month period which included both the 2008 stock market crash and the significant market rebound in 2009 and 2010.  "The Folios performed as designed:  They kept close pace with the industry during the bull market, but really excelled during the bear market period," said FOLIOfn CEO Steven Wallman. "We believe that we have effectively enhanced the traditional structure of Target Date mutual funds offered by the majority of the industry."

The Target Date Folios go beyond traditional diversification strategies to specifically include assets whose returns are not correlated with the general market.  In addition to standard asset-class allocations, the Target Date Folios include allocations to real estate and commodities, partially for protection from inflation.  Also included are infrastructure stocks, including transportation, telecommunications and utilities – asset sectors which tend not to move in tandem with the market.

The diversification goes beyond stocks. Fixed Income dollars are allocated not just to traditional (or nominal) bonds, but also to TIPS, government bonds that factor inflation into their payoff. "TIPS and other inflation-tracking assets are remarkably under-represented in other Target Date Funds," said Folio Investing strategic consultant Geoff Considine. "That is surprising, given the extensive research as to their value in retirement portfolios."

According to Wallman, the overall concept of Target Date investing is solid.  "Many people need help building diversified portfolios that are appropriate for their age and situation," he said.  "We think that the performance of Target Date Folios substantiate the Target Date concept – with better execution applied – as sound."

About FOLIOfn Investments Inc.

Online brokerage Folio Investing and asset custody provider Folio Institutional are divisions of FOLIOfn Investments Inc.  The company enables investors and financial advisors to manage stocks, ETFs, and mutual funds as integrated investment portfolios called "Folios" that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 150 Ready-to-Go Folios representing market indices, industry sectors, geographical regions, target dates, and more.  Additional information is available at: www.FolioInvesting.com and www.FolioInstitutional.com.

Ready-to-Go Folios can be managed or unmanaged, are not registered investment companies, and are offered by FOLIOfn Investments Inc., a registered broker-dealer. FOLIOfn Investments Inc., member of FINRA/SIPC, does not provide investment, tax, or legal advice.

*As with any investment, investments in Target Date Folios are subject to investment risk including the loss of the principal amount invested. Investors should consider the investment objectives and risks of the Target Date Folios before investing. For more information, visit www.folioinvesting.com.

Editors:  

Details on diversification, risk levels, and glide paths are contained in the briefing paper, A Better Approach to Target Date Strategies.  To request copies, contact Folio Investing.

SOURCE Folio Investing