asset allocation  |  March 31, 2021

How Our Strategic Investing Approach Stacks Up Against Passive Portfolios

Discipline has brought long-term rewards for clients.

 

Key Insights

  • We studied 11 of our Retirement Funds and found that all of them beat their passive competitors over various rolling periods from inception through December 31, 2020, net of fees.

  • We compared the performance of each Retirement Fund with a custom composite index based on the performance of passive funds with comparable target dates.

  • The custom composites were based on the oldest share class offered by each competing passive target date fund. The results were equally weighted by fund.

  • Excess returns relative to the passive competitor indexes were positive, on average, across the 1-, 3-, 5-, and 10-year rolling time periods for the funds we examined.1

When selecting a target date fund, defined contribution plan sponsors and individual investors can choose from both passively managed strategies—those that invest in an underlying basket of index funds—and actively managed strategies, which seek to enhance returns through security selection and/or tactical asset allocation moves to exploit potential short-term market opportunities.

When considering active target date funds, investors may wonder if an active management approach justifies the higher management fees that such funds typically charge relative to their passive competitors.

To demonstrate that T. Rowe Price’s strategic investing process has created value for our clients, we recently examined the relative performance of 11 of our Retirement Funds (RFs). These 11 RFs held almost 99% of the RF assets managed by the firm as of December 31, 2020. The focus of our study was on performance relative to the passive target date strategies offered by our competitors.2

Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.

1Rolling 10-year results were not included for the Retirement 2055 Fund because comparable passive competitors could not be identified in that time frame. Five-year and 10-year results were not included for the Retirement 2060 Fund as the fund had no rolling 10-year performance results and only 19 completed rolling 5-year performance results since inception.
2The performance of active target date funds reflects both the glide path mix and the value added or subtracted through security selection and/or tactical allocation. For more information on the T. Rowe Price funds used in this study, please visit troweprice.com.

Important Information

The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter time horizons.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of March 2021 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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Next Steps

  • Target Date Funds: A one-stop option for your retirement goals.

  • Contact a Financial Consultant at 1-800-401-1819.