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Despite the rapid adoption of target date funds and the responsibilities of monitoring such funds, many fiduciaries are unclear on what their target date funds really hold. This uncertainty comes from lack of complete and comparable disclosure among target date funds. The challenges of comprehensive target date due diligence led to the creation of a white paper, Raising the Bar on Target Date Due Diligence, a collaboration undertaken by Manning & Napier and Strategic Insight.
Significant growth over the past several
years was enabled by the Pension Protection Act of 2006, which provided a safe harbor
for plan fiduciaries automatically investing participant assets.
Such significant projected growth may be
a driving force behind recent regulatory
emphasis regarding additional disclosure.
An Investment Policy Statement (IPS) should establish the roles and responsibilities of plan fiduciaries and outline
a prudent process for how investment alternatives are added, monitored, or changed.
A plan's IPS should also provide enough latitude to perform in-depth analysis of the investment options, but also avoid excessively stringent performance guidelines on investment alternative additions, changes,
The DOL released additional guidance for fiduciaries to follow in regards to target date fund screening and monitoring. However, truly understanding a target date fund’s underlying investments can be a challenge for plan fiduciaries.
Fiduciary best practices should include periodic
in-person interviews with the various asset
managers selected for plan options.
By only providing high level information on the underlying funds, target date providers leave fiduciaries and investors uncertain what the target date portfolio actually holds.
Plan sponsors and advisors can request target date fund manager candidates to report the total number of underlying holdings for each target date fund in the fund family, alongside the number of distinct holdings in each target date fund.
We believe a target date fund that is managed by a single portfolio manager or management team is likely evidence of a more coordinated approach that is consistent with the goals of the specific target date fund as opposed to the objective
of each of the underlying funds.
“Funds with distinct mandates, but potentially overlapping holdings, may be as difficult for the asset allocation manager to coordinate, as reviewing and performing due diligence would be for the fiduciary.”
Jeffrey S. Coons, Ph.D., CFA®
When considering target date funds that may hold
more than 5,000 securities on average, plan sponsors
and advisors should consider the potential for over-diversification, as such a significant number
of holdings may produce index-like returns.
Average number of total holdings in the Manning & Napier Target Series.
Learn More About Our Target Date Funds
Active Share "represents the share of portfolio holdings that differ from the benchmark index holdings."5 In general, funds with a higher active share percentage indicate a truly active approach and increase the potential for outperformance relative to low active share managers.
Plan sponsors and advisors should consider both the total number of underlying holdings for target date fund candidates, as well as the active share measure of its most equity-oriented target date fund within the family.
There are material differences among target date fund families that should be considered besides those discussed, such as fees and expenses.
In order to provide a fair and balanced comparison between each fund manager mentioned in this paper, the range of expense ratios for the lowest cost share class of each target date family are provided below.
1May include acquired fund fees, expenses of any underlying funds, and/or 12b-1 fees.
2Reflects any contractual and/or voluntary agreements to limit fees and reimburse certain expenses.
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus at www.manning-napier.com or by calling (800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company.
Each Manning & Napier Fund, Inc. Target Series is invested in one or two of four proprietary lifestyle funds, the Manning & Napier Fund, Inc. Pro-Blend® Series, based on the Target Series becoming increasingly conservative over time. Because the underlying funds invest in both stocks and bonds, the value of your investment will fluctuate in response to stock market movements and changes in interest rates. Investing in target date funds will also involve a number of other risks, including issuer-specific risk, foreign investment risk, and small-cap/mid-cap risk, as the underlying investments change over time. Principal value is not guaranteed at any time, including at the target date (the approximate year when an investor plans to stop contributions and start periodic withdrawals).
The underlying funds of the Manning & Napier Target Series and allocations for calendar year 2013 are as follows: 100% Manning & Napier Fund, Inc. Pro-Blend® Maximum Term Series for Target 2055, 2050, and 2045 Series; 85% Manning & Napier Fund, Inc. Pro-Blend® Maximum Term Series and 15% Manning & Napier Fund, Inc. Pro-Blend® Extended Term Series for Target 2040 Series; 60% Manning & Napier Fund, Inc. Pro-Blend® Maximum Term Series and 40% Manning & Napier Fund, Inc. Pro-Blend® Extended Term Series for Target 2035 Series; 35% Manning & Napier Fund, Inc. Pro-Blend® Maximum Term Series and 65% Manning & Napier Fund, Inc. Pro-Blend® Extended Term Series for Target 2030 Series; 10% Manning & Napier Fund, Inc. Pro-Blend® Maximum Term Series and 90% Manning & Napier Fund, Inc. Pro-Blend® Extended Term Series for Target 2025 Series; 50% Manning & Napier Fund, Inc. Pro-Blend® Extended Term Series and 50% Manning & Napier Fund, Inc. Pro-Blend® Moderate Term Series for Target 2020 Series; 10% Manning & Napier Fund, Inc. Pro- Blend® Extended Term Series and 90% Manning & Napier Fund, Inc. Pro-Blend® Moderate Term Series for Target 2015 Series; 40% Manning & Napier Fund, Inc. Pro-Blend® Moderate Term Series and 60% Manning & Napier Fund, Inc. Pro-Blend® Conservative Term Series for Target 2010 Series; 100% Manning & Napier Fund, Inc. Pro-Blend® Conservative Term Series for Target Income Series. Investments will change over time and as the target date fund gradually becomes more conservative.
Please note that diversification does not assure a profit or protect against loss in a declining market.
CFA® is a trademark owned by the CFA Institute.
Manning & Napier, Inc. (MN) is publicly traded under MN.
Manning & Napier’s Target Date offerings include Collective Investment Trust Funds (CITs).
Manning & Napier Advisors, LLC (Manning & Napier) provides investment advisory services to Exeter Trust Company (ETC), Trustee of the Manning & Napier Collective Investment Trust funds. The Collectives are available only for use within certain qualified employee benefit plans. The Manning & Napier Fund, Inc. is managed by Manning & Napier. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier, MN, and ETC, is the distributor of the Fund shares. Strategic Insight is not affiliated with any of the aforementioned Manning & Napier companies.
1Allsbrook, Wesley. “Looking to the Stars, 2012 PLANSPONSOR DC Survey.” November 2012. Print.
2Janus and PLANSPONSOR Magazine, A Janus Capital Group Company. “Trends in Target-Date Funds, A 2012 Survey of Defined Contribution Plan Sponsors.”
January 2013. Print.
3Managers shown represent the five largest (based on assets) active mutual fund managers of those selected, as described in the ‘Methodology for Target Date Series Analysis.’ Manning & Napier information provided for comparison purposes.
Methodology for Target Date Series Analysis
Mutual fund companies are required to report their holdings on a quarterly basis to the SEC. In addition to reporting to the SEC, fund managers report their fund holdings to third party vendors such as Morningstar and Lipper on a more frequent basis (often monthly). In January 2013, Strategic Insight received data from Morningstar for the underlying securities of 1940 Act, long-only mutual funds. Information on target date funds with assets as of 9/30 from Strategic Insight’s proprietary Simfund MF database was reconciled against securities data collected from Morningstar as of 9/30 to create aggregated statistics described in this report.
4Active share can range from 0% to 100%. A high active share indicates that a fund’s investments significantly differ from its benchmark, while the investments of a fund with a low active share largely mirror the benchmark index. Target Date Managers pulled from the US OE Target Date 2046-2050 Morningstar category. Each manager is represented by the following funds, respectively: Principal LifeTime 2050 Instl, Fidelity Freedom 2050, JP Morgan SmartRetirement® 2050 Instl, T. Rowe Price Retirement 2050, American Funds Trgt Date Ret 2050 R6, Manning & Napier Target 2050 I. Due to the active allocation process, actual allocations may vary from benchmarks. Benchmarks shown are a weighted blend of the respective Index ETFs. The calculation benchmark used for active share is 70% iShares Russell 3000 Index ETF (iShares Russell 3,000) and 30% iShares MSCI ACWIxUS Index ETF (iShares ACWIxUS). iShares Russell 3000 seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the broad U.S. equity market, as represented by the Russell 3000. The Index measures the performance of the broad U.S. equity market. The Index is capitalization-weighted and consists of the 3000 largest companies domiciled in the U.S. and its territories. Component companies are adjusted for available float and must meet objective criteria for inclusion to the Index. Reconstitution is annual. iShares ACWIxUS seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI All Country World ex USA. The Index has been developed by MSCI Inc. as an equity benchmark for international stock performance. It is a capitalization-weighted index that aims to capture 85% of the (publicly available) total market capitalization. Component companies are adjusted for available float and must meet objective criteria for inclusion to the Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. MSCI reviews its indexes quarterly.
5Cremers, Martijn and Petajisto, Antti. “How Active is Your Fund Manager? A New Measure That Predicts Performance,” AFA 2007 Chicago Meetings Paper; EFA 2007 Ljubljana Meetings Paper; Yale ICF Working Paper No. 06-14. Web http://ssrn.com/abstract=891719 or http://dx.doi.org/10.2139/ssrn.891719 March 31, 2009.
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