Wells Fargo Asset Management Launches New Suite of Actively-Managed Target Date Funds
December 01 2015 - 1:08PM
Business Wire
Financial advisors typically recommend that investors aim to
replace 80% of their pre-retirement income for use in their
retirement years. Yet, the average target date glide path may fail
to consistently meet this goal, according to research conducted by
Wells Fargo Asset Management.*
To address this critical challenge, the company has introduced
the Wells Fargo Dynamic Target Date Funds, an investment that
offers a new approach designed to give plan participants what we
believe is the best chance of meeting the 80% goal.
“Until now, target date fund managers have faced a conundrum,”
says Ron Cohen, head of defined contribution distribution for Wells
Fargo Funds Management, LLC. “In the years leading up to
retirement, a glide path arguably needs to be aggressive enough to
meet the participant’s investment goals, yet also be conservative
enough to hedge against market losses, particularly close to
retirement. But it’s difficult for a standard glide path to be both
aggressive and conservative at the same time. Wells Fargo Asset
Management has developed a new approach that is intended to address
this challenge.”
In addition to creating a broadly diversified portfolio with
enough equity exposure to help participants achieve their target
goal, Portfolio Managers Christian Chan, CFA, and Kandarp Acharya,
CFA, FRM, employ a set of institutional-caliber risk management
techniques that include tactical asset allocation and a
patent-pending dynamic risk management approach.
Says Mr. Chan, “Asset allocation is an effective diversification
tool over the long-term, but an imprecise and blunt instrument in
the short term. We use three active risk management techniques to
help manage the portfolios during times of volatility while also
allowing us to opportunistically pursue compelling investment
opportunities.”
These techniques are:
- A proprietary tactical asset allocation
model that allows the managers to pursue market opportunities and
create the potential to generate additional excess returns in a
risk-conscious manner
- A set of volatility management tools
that help moderate the impact of short-term market gyrations,
particularly within the equity exposure
- A tail risk management overlay strategy
that strives to improve participant outcomes by managing excessive
volatility and the risk of large, unpredictable downside
events
“Because plan participants reach retirement during different
market conditions,” adds Mr. Chan, “it’s key to have the tools to
moderate short-term volatility and limit the impact of sudden,
unexpected market losses. Our process allows us to do just
that.”
The Wells Fargo Dynamic Target Date Funds are available in five
share classes: A, C, R, R4, and R6. Funds are offered in five-year
increments from 2015 through 2060, as well as a Dynamic Target
Today Fund. The series’ glide path continues to reduce risk for 10
years after the target date before reaching its landing point.
For more information on the Wells Fargo Dynamic Target Date
Funds, go to wellsfargoadvantagefunds.com or call
800-368-1790.
*In our analysis of the target date fund universe, we simulated
the retirement savings experience of the average individual
investor using 5,000 unique investment return scenarios. We based
investor savings behavior (during their assumed working years) and
asset allocation on a combination of industry statistics and
assumptions, including but not limited to:
- Forty working years from age 25 to
65
- A variable salary growth rate greater
in early working years and slightly negative as retirement
approaches
- Increasing savings rates consistent
with industry data
- Social Security contribution to income
replacement at 75% of the value dictated by the Social Security
Administration’s quick calculator
- Approximation for the industry average
target date fund glide path (sourced from a 2014 Morningstar target
date report)
We then recorded the participant’s results for each glide path
pertaining to his/her:
- Average ending wealth (at age 65)
observed over those 5,000 simulations
- The average instance of shortfall
- The average shortfall per
occurrence
(An occurrence of shortfall is defined as the inability at
retirement to purchase an inflation-adjusted annuity for the
remainder of one’s life—assumed to be 20 years—and have the
combination of the annuity payment plus the presumed Social
Security payment replace 80% of one’s maximum preretirement income
annually to age 85.) The shortfall is the difference between 80% of
one’s maximum preretirement annual income and the aforementioned
annuity payment plus annual Social Security payment. Our results
showed that the average glide path failed to consistently replace
80% of a participant’s preretirement income in retirement.
The target date represents the year in which investors may
likely begin withdrawing assets. The funds gradually seek to reduce
market risk as the target date approaches and after it arrives by
decreasing equity exposure and increasing fixed-income exposure.
The principal value is not guaranteed at any time, including at the
target date.
Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions.
Bond values fluctuate in response to the financial condition of
individual issuers, general market and economic conditions, and
changes in interest rates. Changes in market conditions and
government policies may lead to periods of heightened volatility in
the bond market and reduced liquidity for certain bonds held by the
fund. In general, when interest rates rise, bond values fall and
investors may lose principal value. Interest-rate changes and their
impact on the fund and its share price can be sudden and
unpredictable. The use of derivatives may reduce returns and/or
increase volatility. Securities issued by U.S. government agencies
or government-sponsored entities may not be guaranteed by the U.S.
Treasury. Certain investment strategies tend to increase the total
risk of an investment (relative to the broader market). This fund
is exposed to foreign investment risk, mortgage- and asset-backed
securities risk, smaller-company investment risk, and allocation
methodology risk (risk that the allocation methodology of the Dow
Jones Target Date Index, whose total returns the fund seeks to
approximate, before fees and expenses, will not meet an investor’s
goals). Consult the fund’s prospectus for additional information on
these and other risks.
Wells Fargo Asset Management (WFAM) is a trade name used by the
asset management businesses of Wells Fargo & Company. Wells
Fargo Funds Management, LLC, a wholly owned subsidiary of Wells
Fargo & Company, provides investment advisory and
administrative services for Wells Fargo Funds. Other affiliates of
Wells Fargo & Company provide subadvisory and other services
for the funds. The funds are distributed by Wells Fargo Funds
Distributor, LLC, Member FINRA, an affiliate of Wells Fargo
& Company.
Carefully consider a fund's investment objectives, risks,
charges, and expenses before investing. For a current prospectus
and, if available, a summary prospectus, containing this and other
information, visit wellsfargoadvantagefunds.com. Read it carefully
before investing.
238878 12-15
NOT FDIC INSURED • NO BANK GUARANTEE • MAY
LOSE VALUE
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Wells Fargo & CompanySondra Harris,
415-222-0102Sondra.harris@wellsfargo.com
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