Target Date Funds..A Good Idea to Look Under the Hood

I am not a big fan of target date funds since they give the investor little control over the content of their portfolio, how rebalancing is implemented and tax management. Also there is often little transparency. In my view most investors are better off constructing their own investment portfoilo by themselves or with an advisor that gives them individualized advice.

So I was not surprised to find the following in Investment News a financial industry publication. Apparently the interpretation of what the appropriate target date allocation consists of differs massively between fund companies….and it seems to be a moving target my bolds, my comments in italics

Target date funds increase equity exposure
Equities average 68% of portfolios, up from 55% in 2003, new study from FRC finds
By Lisa Shidler
June 16, 2008
“Managers of target date funds have increased their allocations to equities, on average, but some of the funds' specific investment strategies are difficult to discern, a new study from Financial Research Corp. has found. …..
…"We reviewed their prospectuses and we found that as a general rule we could find the basic features of target date asset allocation strategies in the fund prospectuses," said Lynette DeWitt, a research director with Boston-based FRC.
"However, there were cases where data [were] missing," she said. "It was difficult for us to compare one strategy against another."
“One strategy was clear: increasing equity exposure. The report found that at the end of December, the average target date fund had 68% of its assets invested in stocks, up dramatically from 55% five years earlier. “ Does that mean these folk have changed their view of the proper allocation, how much disclosure to current and future investors have they given about this ?This is certainly disturbing….funds with the same target date can have quite different allocations:But the disparities among funds are marked. For example, Wells Fargo Advantage Dow Jones 2020 fund had 51% equity exposure, while Fidelity Freedom Fund 2020 had 69% equity exposure and Oppenheimer Transition 2020 had 90% of its assets in equities.
And this is faint praise imo:

“While target date funds may not make much sense for high-net-worth clients, 401(k) participants who lack investment expertise may find them useful, said Lisa Falcone, a financial adviser with Newton, Mass.-based Sapers & Wallack Inc., which manages $200 million in assets.
"If you have no investment knowledge whatsoever and you're not comfortable picking funds and don't want to be bothered, then target funds are the way to go," she said. “
In other words if you are clueless and have no desire to increase your knowledge or hire an advisor to help you with one of the most important decisions in your life then unlike wealthier folk you should go ahead with one of these funds
I actually agree with these comments by the same advisor although I don’t think it means that these funds are a good choice for anyone:
“Ms. Falcone also worries that many of these funds don't make their investment choices easily discernable.
"It's just not as transparent as other mutual funds where I can see everything," she said.
And this retirement plan administrator seems to agree that they are not a particularly attractive choice even withing 401ks:
"In a typical target date fund, you really don't know what the makeup is," said Joseph Masterson, a senior vice president at Purchase, N.Y.-based Diversified Investment Advisors Inc., which administers retirement plans having $43.2 billion in assets as of yearend 2007