Vanguard has launched two target date funds (TDFs) aimed at younger investors.
The fund giant said its Vanguard Target Retirement 2060 Fund and the Vanguard Target Retirement 2065 Fund invest in the company’s low-cost equity and bond index funds and exchange traded funds (ETFs).
According to Vanguard, investors will be able to take control of their retirement savings by choosing one of Vanguard’s 11 TDFs based on their expected retirement date. The funds automatically adapts the asset mix for different stages of the investor’s journey to and through retirement.
Vanguard said the TDFs would appeal to a broad range of investors, including those just starting out in their careers. The funds are available via pension wrappers and Isas, as the company said an increasing number of younger investors would use an Isa for retirement saving.
It highlighted this by demonstrating that a seemingly modest saving in a low-cost investment can grow substantially over time. Vanguard highlighted, for example, an individual investing £100 a month in a Vanguard Target Retirement Fund, with an ongoing charge of just 0.24 per cent, could end up with around £135,000 after 40 years. This assumes a 5 per cent growth rate and an investment held via the Vanguard direct-to-consumer (D2C) platform.
Investors can access the funds through Vanguard’s UK Personal Investor service, or through other UK investment platforms or financial advisers.
Vanguard has been providing TDFs for over 10 years, and claims to be the largest manager of the investment strategy in the US, with $597bn (£447.5bn) in of assets as of 31 October 2017. In the US, TDFs have become increasingly popular but remain relatively nascent in the UK. The government-backed auto-enrolment provider, National Employment Savings Trust (Nest), invests using TDFs, a move that brought the investment system to prominence.
Provider view:
James Norton, senior investment planner at Vanguard said: “The UK public is facing an increasingly complicated route to retirement. Investors have more flexibility and choice, but they often face difficult decisions on how to save and invest in a rapidly changing pensions and investment environment.
“Vanguard’s funds are designed to help address these challenges, by offering a straightforward fund solutions based on investment best practices and managed by experienced investment professionals.”
Charges:
Ongoing charge of 0.24 per cent (via Vanguard's D2C platform)
Adviser view:
Andrew Wilson, co-founder of Lockhart Capital Management, said: “These are a reasonably priced one stop shop for younger investors, which could help to encourage an interest in savings, and do a decent job to boot. In this way they are a welcome addition to advisers’ and direct investors’ armoury.
“That said, we have never been terribly comfortable with target date-style funds, as they fail to take account of valuation and market environment. That is, their only master is the investor’s age, and they have no problem in systematically selling cheap assets that may have fallen significantly in price, and buying something that has spiked up in price and may be horrifically overvalued, all just because of someone’s age, which doesn’t seem like a tremendously sensible investment philosophy.”
Verdict:
This is an interesting and potentially positive product launch, but not without its rough edges. Time will tell if it is to be heavily used by advisers and wealth managers, or whether it may be better suited for the direct to consumer market.
