Target-risk returns have much room for improvement

Why so few funds excel in their categories.

Jeffrey Bunce, CFA 24 June, 2016 | 5:00PM
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Editor's note: This week's three-part series on target-risk funds concludes today with manager research analyst Jeffrey Bunce assessing the historical performance of these popular fund-of-funds portfolios. The series, which began on Monday and continued on Wednesday, is based on a research paper released this month by Morningstar Canada's manager-research team.

Most target-risk funds have been mediocre to weak performers relative to their asset-category peers. Very few achieve a Morningstar Rating of 4 or 5 stars, while a disproportionate number of funds score only 1 or 2 stars.

Our sample of 227 target-risk funds, sorted according to their Morningstar Ratings, shows that very few target-risk funds of funds excel in their categories. In fact, more than 74% of the funds are rated 3-stars or less, and only 13% are rated 4- or 5-star.

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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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