In an effort to guard against the rising threat of inflation, several target date fund providers have added alternative asset classes to their portfolios.
In an effort to guard against the rising threat of inflation, several target date fund providers have added alternative asset classes to their portfolios.
T. Rowe Price Group Inc., The Principal Financial Group and OppenheimerFunds Inc. all added new alternative strategies — including investing in REITs and commodities — to their target date lineups during the second quarter, according to new research from Morningstar Inc.
For example, retirement giant T. Rowe Price added to its target date funds the T. Rowe Price Real Assets Fund, which invests in companies in the energy, natural-resources, real estate and commodities industries, according to Morningstar's second-quarter “Target-Date Fund Series Ratings and Research Reports.” "About 5% of each fund's assets are allocated to the fund." T. Rowe Price is aiming to allocate 5% of target date fund assets into Real Assets.
To further combat inflation, T. Rowe also replaced its Short-Term Income fund with the Inflation Focused Bond Fund — which was crafted specifically for its target date fund series, according to Morningstar. The bond fund is added to a target date portfolio 16 years prior to the participant's retirement and eventually accounts for 20% of assets (30% of assets for the retirement income fund).
For example, The Principal added to its target date series Diversified Real Asset, a fund that invests in real estate investment trusts, commodities and master limited partnerships. About 1% to 1.5% of the assets in each fund are now allocated to the fund, according to Morningstar.
The Principal also eliminated its Large Cap Value III, Disciplined Large Blend and Large Cap Blend I funds; assets from these funds are now in a large-cap index fund. The firm also replaced its Small Cap Value and Small Cap Value I with Small Cap Value II.
And OppenheimerFunds added four alternative-asset funds that invest in REITs, commodities, gold and Treasury inflation-protected securities, Morningstar reported.
The company also replaced its Main Street, Global, Discovery and Small & Mid Cap Value with Main Street Small Cap, International Small Company, Champion Income and International Bond funds, respectively.
