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Rating:Fidelity's Target Funds Underwhelm Not Rated 5.0 Email Routing List Email & Route  Print Print
Tuesday, February 05, 2013

Fidelity's Target Funds Underwhelm

News summary by MFWire's editors

Fidelity may be one of the biggest names around in target date funds, but according to research published by the Center for Due Diligence, its performance is nothing to write home about.

In its newsletter published Monday, the CFDD reported that "looking at the 1, 3 and 5 year reporting periods for Fidelity's 2010-2055 TDFs, 68% of the Fidelity Advisor Freedom, 79% of the Fidelity Freedom and 74% of the Fidelity Freedom K funds were in the lower half of their category rankings. Approximately 11% of category rankings in the lower half were in the lower quartile for the Fidelity Freedom Advisor and Fidelity Freedom TDFs."

The underperformance is notable because, in part, these Fido funds have garnered a large amount of assets. Again, according to the CFDD, "Morningstar reported year-end Target Date Fund assets (2010-2055) for Fidelity at $149.5 billion. Vanguard, T. Rowe Price and Principal followed with $111.9 billion, $74.8 billion and $20.2 billion respectively."

Moreover, the CFDD says that "looking at the Fidelity Freedom Index TDFs, 100% of the nineteen 1-3 year reporting periods were in the lower half and 48% of those were in the lower quartile. We aren't totally sure why the Fidelity Freedom Index TDFs are lagging the Vanguard TDFs by so much, but the glide path, sub-allocations including a commodity allocation and cash flow may be responsible. Vanguard could also be better at indexing than Fidelity, but given the skills of their Geode Capital Management subsidiary, that is most unlikely."

In addition, the Center notes that "given that the Fidelity Freedom Index TDFs offer zero revenue sharing on the Fidelity platform, the larger, longer history and better known Vanguard TDFs are capturing far more assets. In reality, the Fidelity Freedom Index TDFs may be more commonly used in IRAs and brokerage accounts than as core DC plan options."

The news was gobbled up by a number of publications, including The New York Times, CNBC, and InvestmentNews

Edited by: Tommy Fernandez

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