About 50 per cent of new funds flows into ‘lifestyle funds’ in the US – which are the equivalent of the default investment options in Australian super funds – have gone into new ‘target-date funds’ in the past few years, according to research by Lipper Associates.
The US research, released yesterday by Russell Investment Group, shows that target-date funds received about 80 per cent of new flows into lifestyle or balanced funds in 2005, compared with 50 per cent on average over the past four years. Target-date funds, a range of which was launched by Russell in Australia last year, adjust their asset allocation as the investor approaches the ‘target’ expiry date for the fund. The other type of ‘lifestyle funds’ represent the traditional balanced options, usually involving a range of fairly narrow strategic asset allocation bands. An investment in one of these requires the member to update the asset allocation from time to time, usually making the active decision to move away from growth funds and towards capital stable funds as he/she nears retirement. According to Heather Dawson, Russell managing director, retirement services, the target-date fund share of the total lifestyle fund market in the US already represents more than half. She said target-date funds would become a “significant investment phenomenon” in Australia over the next decade”. The US experience had shown that too much choice had not served the best interests of investors, she said, and people were now turning in droves to “simplified investment solutions that offer embedded advice on all the key decisions, such as what managers to choose and what asset allocation to set.” Dawson said: “The US has provided us with a real insight into actual investor behaviour, which is highly relevant to the Australian market in terms of developing solutions that are going to serve the best interests of investors. “Research has shown that in Australia the majority of people don’t seek financial advice; they don’t take time to evaluate their risk profile and choose an appropriate asset allocation; and, even if they do, they rarely reassess it. Target-date funds automatically alter their asset allocation over time – and that’s why they have become one of the fastest growing investment phenomena around the world.”
The brunt of losses from the LA wildfires are expected to be borne by primary insurers and high-risk reinsurance programs, but super funds are nevertheless closely monitoring the possible impact of the fires on catastrophe bond and insurance-linked securities exposures.
Simon HoyleJanuary 17, 2025
