Driving a team of a dozen horses toward the same destination, when they are tied to one another by a strong harness and responsive to commands, may appear to be easy, but it may not be.
Driving a team of a dozen mutual funds toward different distant years, connected by a common investment strategy within the parameters of a finely spun web of government regulations of securities and retirement plans, doesn’t appear to be easy, and it probably isn’t.
Yet, despite the recent recession and bear market, Jerome A. Clark, portfolio manager of the twelve T. Rowe Price Retirement Funds since the group’s organization in 2002, had five of them repeat as winners of Lipper Fund Awards for consistently superior risk-adjusted returns in their Lipper investment objective categories for periods ended December 31.
T. Rowe Price Retirement 2040 Fund repeated as winner for outperforming peers in its mixed-asset target year category for both the last three and five years. The 2030 fund repeated as winner for the last five years and won for the last three — as it did 2015 and 2025 — and the 2005, 2035 and 2045 funds also repeated for the last three.
The awards are given for consistently superior performance based on Lipper’s proprietary methodology for computing risk-adjusted returns.
What Lipper calls mixed-asset target funds — and others call target-date or lifecycle funds — are the 87-year-old mutual fund industry’s newest major fund type. Investment policies and strategies may differ, but they have things in common — each fund’s assets are invested primarily in stock and bond funds — usually sibling funds.
The funds move along a glidepath, becoming more conservative as investors near retirement.
For younger investors, a fund starts with 90 percent in stock funds. By retirement, equity holdings will drop to 55 percent.
Upon reaching the target retirement date, Clark begins to gradually ratchet down the equity exposure over the ensuing 30 years, ending at 20 percent equities and 80 percent bonds at age 95. (T. Rowe Price Retirement Income Fund, also managed by Clark, pursues a different strategy: a constant allocation of 40 percent stock funds and 60 percent bond funds for those who want more exposure to the stock market.)
All that workers and other investors have to do is pick the funds whose target years — every fifth year from 2010 through 2055 for now — are closest to their retirement years. Clark and his team — and their computers — will do the rest. Among their latest ideas: Investing in the new T. Rowe Price Real Assets Fund, not yet directly available to investors, to provide some protection against inflation.
If the recent bear market was any indication, it won’t always be easy. There will be investors who forgot or never learned the funds’ lifetime methodologies, will take a short view based on what they read and hear and decide to cash out when stock prices fall.
Because T. Rowe Price’s Retirement Funds are invested in the Baltimore-based firm’s stock and bond funds, portfolio selection has to be easier than if Clark had to choose individual securities from among thousands of outstanding issues or other companies’ mutual funds.
Given that the funds’ asset allocations may range from 90 to 20 percent in stock funds and from 80 to 10 percent in bond funds, Clark’s flexibility in putting money to work within the asset classes varies.
Stock funds. “To keep the fees down,” Clark holds significant core positions in T. Rowe Price Equity Index 500 Fund, passively managed to match the S&P 500 Index, in the shorter-term funds. (The group’s effective annual expenses run from just under 0.60 to 0.75 percent, based on the indirect expense impact of investing in the underlying funds.)
Starting with the 2025 fund, Clark still invests in the index fund, but makes two actively managed domestic large-capitalization funds –T . Rowe Growth Stock Fund and T. Rowe Price Value Fund — the largest equity positions. Smaller positions are widely diversified among other funds, including T. Rowe Price Mid-Cap Growth Fund, T. Rowe Price New Horizons Fund and T. Rowe Price Overseas Stock Fund.
Bond funds. By far the largest bond fund portion is in T. Rowe Price New Income Fund, the firm’s domestic investment-grade bond fund along with smaller allocation to portfolios such as T. Rowe Price High Yield Fund and T. Rowe Price Emerging Markets Bond Fund.
In addition to the Retirement Funds’ sweep of the mixed-asset target year categories, other T. Rowe Price funds won Lipper Awards in their classifications, including T. Rowe Price Capital Appreciation Fund in large-cap core, T. Rowe Price Financial Services Fund, T. Rowe Price Growth Stock Fund, T. Rowe Price Health Sciences Fund and T. Rowe Price Global Technology Fund.
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