Russell's Target Date Metric* (TDM) offers a standardized approach to evaluating target date fund families. With a methodology designed to reflect the behavior of an individual saving for retirement, the Russell TDM provides an objective, transparent measure to help plan sponsors, advisors and individual investors make informed investment decisions.
Now available: Third quarter 2011 Russell Target Date Metric results
Top five target date fund families
As of September 30, 2011
Ranked by 1-year TDM
Fund family
1 year
Invesco Balanced-Risk Retirement
144.9
American Century LIVESTRONG
101.1
BlackRock Lifecycle Prepared
98.1
MFS Lifetime
96.7
Columbia Retirement Plus
94.2
Ranked by 3-year TDM
Fund family
3 year
Invesco Balanced-Risk Retirement
136.0
USAA Target Retirement
125.5
Franklin Templeton Retirement Target
99.1
PIMCO Real Retirement
97.5
Wells Fargo Advantage Dow Jones Target
92.5
The TDM represents the ratio of the wealth generated by a family of funds compared to the wealth generated by a hypothetical benchmark family of funds. A TDM of
100 indicates performance inline with the benchmark while a TDM of 105 indicates a 5% excess return over the benchmark. A TDM of less than 100 indicates performance below the benchmark for that time period.
The Russell Target Date Metric was designed to measure the ability of an entire family of target date funds to achieve their primary goal of building wealth for retirement. All aspects of a fund family's investment process are captured in the metric including:
Active management
Asset allocation to equity and fixed income
The assumption of cash contributions towards retirement
Key benefits
Completely objective
Compare fund family performance relative to a benchmark
Evaluate multiple fund families relative to each other
Produce a performance universe of similar funds that offers a fair comparison
For more information about the Russell Target Date Metric
The Russell TDM is the ratio of wealth generated by a family of target date funds to the wealth generated by a benchmark over a specified time period. The Russell TDM universe consists of the U.S.-based target date funds included in the
Morningstar database classified as Target Date, other than target date funds advised, distributed or serviced by Russell Investment Management Company or its affiliates. The families featured in the analysis include target date funds with increments of 5 or 10 years, with a minimum of 4 target date funds per family that have glide paths that begin 45 years before the target date. For each fund family selected, the share class with the lowest fees, often the institutional class, is used. Share classes may not be directly
comparable to each other and analysis of other share classes can result in higher or lower TDMs than those shown. The TDM calculation is based on the performance of the funds in a Target Date Fund family. If the funds had a front-end sales charge, it was taken into account in the calculation. Some funds may have had a fee or expense waiver during one or more of the periods for which the TDM was calculated that could have had a material effect on performance. The TDM number would have been lower had these waivers not been in effect.
The Russell TDM combines monthly returns of a fund family suite of target date funds to generate a performance measure over a specified period. Conceptually, the TDM is the ratio of retirement wealth generated by a fund family to the wealth generated by investing in an appropriate benchmark over the same period. Constructing this performance measure requires assumptions about the construction of target date funds and investor contributions.
The glide paths for target date funds begin 45 years before the target date. For each fund family, target date funds exist at five-year intervals. If there are gaps in the fund lineup for a family, returns are interpolated or extrapolated as appropriate. $1 is deposited at the beginning of each month for 45 years (540 periods). The benchmark glide path is based on the Morningstar® Lifetime Allocation Indexes Moderate Risk profile ("Morningstar Indexes") The Morningstar Indexes are aggregated in the same manner as the target date funds analyzed in the TDM. That number is then used in the denominator to create the relative TDM. Different Indexes will produce different results. Prior to 2Q10, a different benchmark was used to create the TDM. Prior periods are not directly comparable. Click on the link for more information about the Morningstar® Lifetime Allocation Moderate Risk Indexes. http://corporate.morningstar.com/us/asp/subject.aspx?page=2649&filter=AssetAllocation&xmlfile=2867.xml
Using these assumptions, a measure of the retirement wealth generated in a specified period is calculated. This calculation requires 540 returns, one for each month on the glide path. Each monthly return is applied to the ending value of an investor portfolio in the previous period. Using this recursive method, the wealth at the end of the 540 months is calculated. The returns are generated by the following process:
The monthly returns of each of the funds in a family are placed in their appropriate location on the glide path.
The other returns are filled with the expected value of the benchmark glide path, using Russell 20-year forecasts as of June, 2009.
The same process is used to create the wealth generated by the benchmark glide path. The TDM is the ratio of the wealth generated by the family of funds over the evaluation period to the wealth generated by the benchmark glide path over the same evaluation period.
For a complete explanation of the calculation methodology, including limitations and assumptions, go to Introducing the Russell Target Date Metric
Performance ranking is sensitive to time period. This is true of any returns-based performance metric. This fact must be kept in mind in interpreting the Russell TDM: it is a measure of performance over a given time period, not a predictor of future performance.
This material contains information concerning investments other than those offered by Russell Investment Group, its affiliates or Subsidiaries. The target date funds referenced herein are not sponsored, endorsed, sold or promoted by Frank Russell Company or any of its affiliates ("Russell"). Russell makes no representation or warranty, express or implied regarding the advisability of investing in securities generally or in any of the target date funds particularly. Russell publication of the Russell TDM in no way suggests or implies an opinion by Russell as to the advisability of investment in any of the target date funds. Russell has no obligation or liability in connection with the administration, marketing or trading of any of the target date funds.
Funds not classified as Target Date by Morningstar, Russell Funds and/or any funds that are affiliates of Russell Investment Group are not included in this report. Fund family performance, AUM and Glide Path information was provided by Morningstar and while all information is deemed to be reliable, accuracy and completeness cannot be guaranteed. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL TDM OR ANY DATA INCLUDED THEREIN AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL TDM OR ANY DATA INCLUDED THEREIN.
Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes.
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