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most plans that feature subadvisors are not exclusively subadvised. Among the largest “open architecture” target-date series, the advisor typically has kept 30% to 60% of the series’ assets with in-house managers.
Proof Not in the Numbers

Best and Worst Three-Year Risk-Adjusted Return Rank
Best
Target-Date Series Risk-Adj Rtn Architecture

Worst
Target-Date Series Risk-Adj Rtn Architecture

Manning & Napier Rtrmt Target PIMCO RealRetirement ING Index Solution MFS Lifetime American Century LIVESTRONG Wells Fargo Advantage DJ Franklin Templeton Rtrmt Vantagepoint Milestone BlackRock Lifecycle Prep JPMorgan SmartRetirement

–1.21 –2.19 –2.36 –3.73 –4.07 –5.07 –5.23 –5.51 –5.55 –5.71

Closed Closed Mixed Closed Closed Open Closed Open Closed Closed

Oppenheimer LifeCycle Goldman Sachs Rtrmt Str AllianceBernstein Rtrmt Str RiverSource Rtrmt Plus Seligman TargetHorizon ETF ING Solution Putnam RetirementReady Principal LifeTime John Hancock Lifecycle AIM Balanced-Risk

–13.41 –11.38 –11.13 –10.81 –10.21 –9.46 –9.39 –9.39 –8.82 –8.42

Closed Closed Closed Closed Open Mixed Closed Mixed Mixed Mixed

One argument that closed-architecture critics can’t make is that the open model offers investors better performance. We analyzed the performance of target-date series from several angles: risk-adjusted returns, attribution, underlying Morningstar Ratings, and overall Morningstar Target-Date Fund Series Ratings. We found that open-architecture series have not demonstrated a meaningful performance edge over closed-model series by any measure. First, we looked at the three-year risk-adjusted return of 37 target-date series. Only three of the series with the 10 best performances were either wholly run by subadvisors or were run by a mix of in-house managers and outside subadvisors. Moreover, two of the three (Wells Fargo and ING Index Solution) were indexbased offerings that employed a single external subadvisor. Vantagepoint Milestone Series, which also was in the top 10, was exclusively run by subadvisors and taps managers from a wide range of firms. Out of the bottom 10 performers on a risk-adjusted basis, five series used at least some nonproprietary holdings. The three-year risk-adjusted returns are heavily influenced by the series’ glide paths. Funds with equity-heavy asset allocations were among the worst performers in 2008’s market slide. To take the glide path out of the performance equation, we ran a performance attribution on 31 target-date series. By isolating the selection factor, we determined the impact of fund management’s sector weightings, security selection, and tactical asset allocation. Once again, the data reveals no advantage to open-architecture series or nonproprietary target-date lineups. Of the nine series that have positive attribution for selection over the two-year period, two have

This study analyzed 37 target-date series: 20 used closed architectures, eight used open architectures, and nine used a mix. For series with histories of less than three years, we backfilled returns using a proxy. Data through Dec. 31, 2009.

Selection Factor of a Performance Attribution
Target-Date Series Selection Architecture Target-Date Series Selection Architecture

T. Rowe Price Retirement JPMorgan SmartRetirement American Funds Trgt Date Rtrmt Vanguard Target Rtrmt Vantagepoint Milestone BlackRock LifePath Wells Fargo Advantage DJ MFS Lifetime Schwab Target Seligman TargetHorizon ETF MainStay Retirement State Farm Lifepath MassMutual Select Dest American Century LIVESTRONG John Hancock Lifecycle Guidestone Funds MyDestination

1.25 0.65 0.65 0.38 0.26 0.22 0.14 0.09 0.04 –0.09 –0.21 –0.28 –0.41 –0.44 –0.50 –0.66

Closed Closed Closed Closed Open Closed Open Closed Mixed Open Mixed Open Mixed Closed Mixed Open

BlackRock Lifecycle Prep Columbia Rtrmt Portfolios Nationwide Target Dest Fidelity Freedom TIAA-CREF Lifecycle Putnam RetirementReady AllianceBernstein Rtrmt Str ING Solution Russell LifePoints Trgt Date DWS LifeCompass Fidelity Advisor Freedom Principal LifeTime Goldman Sachs Rtrmt Str RiverSource Rtrmt Plus Oppenheimer LifeCycle

–0.81 –1.12 –1.17 –1.90 –2.16 –2.38 –2.51 –2.52 –2.69 –2.70 –2.84 –3.31 –4.24 –5.48 –6.92

Closed Mixed Open Closed Closed Closed Closed Mixed Open Closed Closed Mixed Closed Closed Closed

Series must have two-year history to qualify for attribution study. Thiry-one target-date series qualify. Positive number means management’s investment selection had a positive impact on performance. Data as of Dec. 31, 2009.

nonproprietary structures. Of the 22 series with negative selection attribution, half are completely or partially subadvised. We next looked at the Morningstar Ratings associated with 33 target-date series’ underlying funds. The Morningstar Rating

considers a fund’s risk-adjusted performance relative to peers. We averaged these ratings across the underlying funds in a target-date series on an asset-weighted basis. In theory, an open-architecture series with the flexibility to choose any manager would have a higherquality portfolio. But overall, open-architecture

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