Morningstar Advisor - December 2010/January 2011 - (Page 65)

Gray Matters Aiming at Alternatives By Josh Charlson Target-date funds are finally incorporating alternative investments into their mix. Target-date funds have been one of the brightest success stories in the mutual fund industry over the past five years, propelled by the Department of Labor’s ruling that target-date funds could serve as qualified default investment alternatives under the 2006 Pension Protection Act. Since then, assets in target-date funds have exploded, with inflows ballooning to $45 billion in 2009 from $22 billion in 2005. Increasingly, investors in employer-sponsored retirement plans are putting their assets, and retirement futures, in the hands of target-date fund managers. Despite the prominent role these funds play in investors’ retirement well-being, targetdate managers have been slow to adopt new asset classes and investment types, preferring to stick with the status quo. But we’re seeing signals of change. Some of the largest providers have expanded their allocations into less-traditional areas, while some newer entrants to the target-date scene have taken fairly bold steps into alternatives. Meeting Resistance begin with, and there’s even greater ambiguity when it comes to target-date funds. Because the typical target-date fund shareholder is a novice investor, and because these investments are constrained by both the structure of the Investment Company Act of 1940 and the QDIA requirements established under the Employee Retirement Income Security Act of 1974, target-date funds are working within a more limited framework than are institutional managers or advisors for high-net-worth individuals. “Alternative investments” is a cloudy term to 65

Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011

Morningstar Advisor - December 2010/january 2011
New on
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Investment Briefs
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
All Aboard!
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?

Morningstar Advisor - December 2010/January 2011