Bloomberg Hunts for Junk Inside Target Date Funds
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Wednesday, December 16, 2009

Bloomberg Hunts for Junk Inside Target Date Funds

Fundsters interested in the ins and outs of target date funds' investments (or in the PR fight they've been in for the past year or so) may want to take a look at a new article in Bloomberg. Margaret Collins and Jeff Plungis report that six of the nine biggest target date fund families use junk (i.e. high-yield corporate) bonds inside their 2010 funds: American Funds, Fidelity, John Hancock, Principal, T. Rowe Price and TIAA-CREF. (According to ING, Vanguard and Wells Fargo do not use junk bonds in their 2010 or 2015 funds.)

Laura Pavlenko Lutton, editorial director in Morningstar's mutual fund research group, tells Bloomberg of the risks of using junk bonds in target date funds, and target date fund disclosure champion Senator Herb Kohl (D-Wisconsin) also attacks the practice.

Hancock's Bob Boyda (senior vice president, investment management services), T. Rowe's Ned Notzon (chairman of its asset allocation committee) and Fidelity's Jonathan Shelon (manager of the Freedom Funds) all defend their use of junk bonds, while James Lauder (CEO of Global Index Advisors and co-portfolio manager of Wells Fargo's target date offerings) defends his avoidance of junk bonds. Several advisors also weigh in.

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