funds, represent a fast growing market in the US driven primarily
by defined contribution pension scheme members seeking a seemingly
simple yet effective solution. Indicative of their popularity,
industry body the Investment Company Institute reported that total
assets in lifecycle funds soared by 61 percent in 2007 to $133
billion, of which 88 percent was held in retirement accounts.
The big selling point of lifecycle funds is that they are
designed to automatically shift investors’ portfolios from
high-risk assets such as equities to low-risk assets such as
inflation linked bonds as they age. That’s the theory at least. In
practice this may not always be the case, according to research
undertaken by consultancy Watson Wyatt.
In its analysis, Watson Wyatt found considerable variability in
asset allocations for employees in all stages of their careers. For
instance, in 2006, allocations to equities for employees 10 years
from retirement varied from 80 percent to 40 percent among
lifecycle funds. Equity allocations for employees on their
retirement day ranged from 65 percent to 20 percent.
“The lack of consistent philosophies means that products with very
similar names can have very different compositions,” said Robyn
Credico, national director of Watson Wyatt’s defined contribution
Despite recent equity market turmoil the equity preference amongst
certain lifecycle fund managers has not apparently changed.
Specifically, Watson Wyatt noted that mutual fund research company
Morningstar Direct has reported that some funds for employees
expecting to retire in 2010 still have almost 70 percent of assets