Morningstar Minute: Two cheap target-risk solutions

Funds of funds tend to be expensive; picking low-cost options gives you a better chance to outperform.

Jeffrey Bunce, CFA 30 June, 2017 | 5:00PM

 

 

Target-risk fund-of-fund solutions on offer from the banks, insurance companies and independent asset managers are becoming the way for individuals to save for retirement. Flows into these mutual funds continue to outpace flows into stand-alone stock and bond funds by a wide margin. We recently spent a good chunk of time researching some of the biggest and most influential offerings in the marketplace, and one of the main takeaways from our work is that these funds are expensive. The average management-expense ratio of a commission-based target-risk fund of funds in Canada weighs in at 2.3%. This fee hurdle is substantial and, given this, it's not surprising that most have underperformed their benchmarks.

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About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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