Morningstar, Inc. recently filed a comment letter with the Securities and Exchange Commission urging the regulator to require target-date series to provide more details on how the investments are managed and structured. The agency in June 2010 proposed rule amendments to help clarify the meaning of a date in a target date fund’s name, among other amendments.
Morningstar said while it supports the Commission's effort to improve investors' understanding of a target-date fund's asset allocation, “that goal would not be met by requiring each target-date fund to disclose its asset allocation at the target date adjacent to the first use of the fund's name in marketing materials. To be sure, Morningstar maintains that the series' asset-allocation at all points along the glide path be disclosed clearly as part of the funds' prospectus.”
The research firm also had a problem with the target-year allocation disclosure, which it said could be confusing to investors. “Most investors choose target-date funds within their defined-contribution plan, which typically offers just one target-date series,” it said.
“As a result, every fund in the series that precedes its target date would have the same asset allocation at the target date, even though the funds are designed for participants of varying ages and may have vastly different allocations at the time of enrollment. Also puzzling would be the current allocations disclosed on the funds that are past their target dates.”
Industry participants looking for more details can read the comment letter in its entirety.