American Funds clobber Lipper Awards for target-date funds

Thrivent nabs two best overall trophies, while TIAA gets best overall large fund company for fifth straight year

Mar 23, 2017 @ 9:00 pm

By John Waggoner

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The American Funds added 24 Thomson Reuters Lipper Awards to their trophy case for 2017, while Thrivent and TIAA collected top honors as well. The awards were presented Thursday night at an awards dinner in New York.

The American Funds, a longtime broker-sold favorite, swept the target-date category for the past three- and five-year periods. The company's target funds had also swept the 2016 awards.

"We're thrilled to win the awards, because they're based on risk-based results," said Toni Brown, senior vice president of the American Funds' defined contribution division. "Our objective is to help participants build and then preserve wealth to have a successful retirement."

The American Funds target-date offerings have several advantages. Like many target-date funds, they use the company's funds. Someone investing in the American Funds 2030 Target Date Retirement fund (RFETX), for example, would get exposure to EuroPacific Growth (RERGX), New Perspective (RNPGX) and Smallcap World Fund (RSLFX), all of which also brought home Lipper awards.

The funds have a "through" glide path, meaning they don't assume investors will sell all their stocks the moment they retire. Instead, the allocation to stocks declines gradually through retirement. In general, this will give them a higher allocation to stocks than those using a "to" glide path — and in a year like 2016, that's a big performance advantage.

But the American Funds target-date offerings also have what Ms. Brown called "a glide path within a glide path." The funds tend to invest in smaller, more growth-oriented stocks initially, then move more toward larger, dividend-paying stocks as the target date approaches. For example, American Funds 2055 Target Date Retirement Fund (RFKTX) has about 16% of its equity assets in small or midcap stocks, while the American Funds 2020 Target Date Retirement Fund (RRCTX) has about 9% in small- and mid-cap stocks.

(More: Top funds honored by Lipper in 2017)

The American Funds target-date offerings have a portfolio oversight committee of seven managers, all of whom have a hand in running some of the underlying funds. Their role is to think about the best allocation and diversification for participants to reach good retirement outcomes, Ms. Brown said. "They really think about the end participant every step of the way," she said.

In the overall fund family, $15 billion Thrivent Funds won the award for best overall small company. It also won best mixed-assets small company.

"The mixed-asset award is particularly gratifying because it's our flagship fund," said David Royal, president of Thrivent Mutual Funds. The Thrivent mixed-asset funds are risk-based funds.

"We've just had a number of years with good results, particularly with the small and midcap team," said David Francis, vice president of investment for equities at Thrivent. "We've made significant investments on our proprietary research team and now have 20 seasoned industry analysts."

On the fixed-income side, Mark Simenstad, vice president of fixed income at Thrivent, said the funds avoided big duration bets, instead looking at high-yield and investment-grade bonds for improving credits.

A team of five managers runs the asset allocation funds, and they do look for tactical opportunities where they fit the fund's objective. Case in point: Thrivent took a larger than usual stake in energy funds last year.

"We thought it was a pretty unusual opportunity," Mr. Simenstad said. Energy stocks fared well in 2016 as oil prices rose.

TIAA Investments (now Nuveen/TIAA Investments) took the best overall large fund company trophy — its fifth straight year of winning that prize.

"This is the longest run we've ever seen," said Tom Roseen, head of research services at Thomson Reuters Lipper.

(More: The full list of 2017 Lipper Fund Award winners)

Other big winners: OppenheimerFunds took home 21 awards and Pimco grabbed 16. And a handful of funds won awards for three, five and 10 years: Pimco Foreign Bond Fund (PFORX), T. Rowe Price Health Sciences Fund (PRHSX), Cohen & Steers Real Estate Securities Fund (CSDIX), Vanguard Long-Term Investment-Grade Fund (VWETX), Pimco StocksPlus International Fund (PISIX) and Parnassus Endeavor Fund (PARWX).

The Thomson Reuters Lipper Awards look at rolling periods of time, rather than just a three-year or five-year record, Mr. Roseen said.

"It focuses on multiple different time periods," he said.

Because the pain of losing money is much more intense than the pleasure of making money, the ratings punish big downside moves. Recent periods get greater weights than older ones, and winners are measured against other funds in their classification, rather than a stock index.

"I like to think of it as a measure of consistent returns," Mr. Roseen said.

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