First, we select the top trending category from more than 200 categories listed on MutualFunds.com based on the percentage increase in monthly viewership. Then, we choose the top three funds with the highest one-year trailing total returns from the top trending category. To ensure the quality and staying power of funds, we only look at those mutual funds with a minimum of $150 million in assets and a track record of at least three years. We also remove those mutual funds that are closed to new investors and not available for investment outside registered accounts such as retirement or 529 accounts.
In this edition, we take a closer look at trending Target-Date 2040 Funds for investors.
Target-date funds, also known as lifecycle, dynamic-risk or age-based funds, provide a simple portfolio whose asset allocation becomes more conservative as the target date approaches. For example, the portfolio may primarily hold equities early on, while eventually transitioning to largely fixed income as the target date approaches.
Our breakdown of each fund includes vital aspects, such as one-year performance, performance from inception, fund expenses, investment strategy and management team’s profile to give you an overview of how these funds hold up against their peers.
Be sure to check out the Target-Date 2040 Funds page to find out more about the other funds in this category as well.
The number one mutual fund on this week’s list is the Fidelity Freedom 2040 Fund (FFFFX). It provided an exceptional trailing one-year total return of 34.90% with a 0.75% expense ratio and 0.92% yield, putting it in the middle of the road as far as expense and yield.
The fund’s strategy is to invest in a combination of equity funds, international equity funds, bonds funds and short-term funds. The fund uses a neutral asset allocation, eventually reaching an allocation similar to the Freedom Income Fund approximately 10 to 19 years after 2040. Through active asset allocation, the fund manager may increase or decrease exposures relative to the neutral asset allocation by up to 10%.
The fund is co-managed by Andrew Dierdorf and Brett F. Sumsion, who have an average tenure of 8.8 years. Mr. Dierdorf manages a range of target-date funds and has a B.S. from the University of Delaware. Mr. Sumsion similarly oversees multiple target-date funds with a B.A. from Brigham Young and an MBA from Wharton.
The fund’s portfolio consists of 43% U.S. equities, 44% non-U.S. equities, 7% fixed income and 5% cash. Notably, the international equity allocation is greater than the 27% category average, while the fixed-income allocation is less than the 13% category average. The most significant sector exposures are financial services and technology, while international distributions focus on Europe and emerging markets in Asia.
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The T. Rowe Price Retirement 2040 Fund (TRRDX) comes in second place. It generated a one-year trailing return of 32.47% with a 0.6% expense ratio and 0.71% yield, making it the least expensive and lowest-yielding fund on the list.
The fund invests in a diversified portfolio of other T. Rowe Price stock and bond funds representing various asset classes and sectors. These allocations are what the fund managers consider broadly appropriate to investors at specific stages of retirement planning.
The fund is co-managed by Wyatt A. Lee, CFA; Kimberly E. DeDominicis; and Andrew Jacobs van Merlen, CFA, who have an average tenure of 3.1 years. Mr. Lee is the most senior manager with a B.S. from Vanderbilt University and an MBA from Washington University.
The fund’s portfolio consists of 56% U.S. equities, 30% non-U.S. equities and 8% fixed income. Like the first-place fund, the T. Rowe Price Retirement 2040 Fund has a lower fixed-income allocation than the category average of 13% and a slightly higher international percentage. The most significant sector allocations are technology and financial services, while global investments focus on Europe.
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The John Hancock Funds II Multimanager 2040 Lifetime Portfolio Fund (JLIAX) rounds out the list. It has a one-year trailing return of 32.10% with a 1.01% expense ratio and a 1.47% yield, making it the most expensive and highest-yielding fund on the list.
The fund’s strategy is to invest in an asset allocation strategy designed for investors expected to retire around 2040. The portfolio managers allocate assets among the underlying funds with a strategy that becomes more conservative over time.
The fund is co-managed by Nathan W. Thooft and Robert E. Sykes, who have an average tenure of 5.8 years. Mr. Thooft is the most senior manager, with 22 years of industry experience and eight years in strategy.
The fund’s portfolio consists of 56% U.S. equity, 31% non-U.S. equity and 8% fixed income, similar to the other funds on the list. Within equities, the fund has an above-average allocation to mid-, small- and micro-cap stocks at 17.5%, 6.4% and 1.9%, respectively. Meanwhile, the international component focuses on European equities.
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The Bottom Line
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Note: Data as of July 16, 2021.