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Fidelity’s Target Date Funds Riskier Than Rivals

March 7, 2018

Financial advisors who sell Fidelity’s popular Freedom Funds may want to take a closer look at their asset allocations, according to analysis from one newswire. The company has overhauled its popular target date funds with a far more aggressive exposure to equities, including in emerging markets prone to volatility, according to Reuters.

True, Fidelity’s mutual funds have outpaced at least 85% of their rivals over the past three years, according to the newswire. But they’ve done so at the expense of dropping Fidelity’s motto of staying put with their asset allocations, Reuters writes. Since an overhaul in 2014, Fidelity’s portfolio managers have been timing market shifts, which has done well during the bull market but could expose clients to far heavier losses in a down market, according to the newswire. And around 6.2 million Americans have about $224 billion in Freedom Funds, making up around 10% of Fidelity’s assets under management, Reuters writes.

“These funds with high concentrations in stocks are a time bomb,” Ron Surz, president of research firm Target Date Solutions, tells Reuters.

Fidelity’s Freedom 2020 Fund, aimed at investors retiring in two years, is 60% stocks compared to an average of 40% in similar funds from other firms, according to Morningstar data cited by the newswire. The fund lost 6% from Jan. 26 to Feb. 8, which was worse than 81% of its target-date fund competitors, according to Morningstar, Reuters writes.

A Fidelity spokesman tells the newswire that Americans can take on more risk than before because they live longer and retire later, and so have more time to recoup losses. He also tells Reuters that Fidelity’s 2014 overhaul was in response to long-running underperformance.

By Alex Padalka
  • To read the Reuters article cited in this story, click here.