Target Maturity Funds See Negative Returns in Q210

As global equity markets stumbled during the second quarter, so did returns for target maturity funds, according to Ibbotson Associates. 

Ibbotson’s Q2 2010 Target Maturity Report said the average target maturity fund had a negative return for the first time in five quarters. Although on average value was destroyed during the quarter, the negative 7.6% average target maturity fund return in the second quarter was notably better than the negative 11.4% return of the S&P 500 Index due to the diversification target maturity funds typically have.   

According to the report, the weighted-average return of the 13 indexes that collectively form the Morningstar Lifetime Moderate Index family was negative 7.3%, slightly better than the average target maturity fund. However, figures over the past 12 months ending June 30, 2010 tell a different story with positive double-digit returns for each metric.   

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For the second quarter, each index in the Morningstar Lifetime Allocation Index family, which is based on Ibbotson’s Lifetime Asset Allocation methodology, was negative with returns ranging from just less than 0% for the Conservative indexes in retirement to worse than a 10% loss for the Aggressive indexes furthest from retirement. Ibbotson said the strong quarterly underperformance was due to the very weak performance of equity markets around the world.   

One-year performance ranged from nearly 9% to more than 15%.  

Overall, target maturity flows slowed considerably in the second quarter of 2010 after a big rebound in the first quarter. Monthly flows in May and June reached lows that have not been seen since the height of the financial crisis in October and November of 2008.   

Target maturity fund flows have averaged $3.9 billion per month over the trailing 36 months, but reached only $2.6 billion in May and $2.1 billion in June.  

Ibbotson’s Q2 2010 Target Maturity Report can be downloaded from here. 

Clients Expected to Increase Donations to Offset Tax Hikes

The majority of financial advisers (87%) expect income taxes to increase for most of their clients in the next 12 to 18 months, with one in four advisers (26%) predicting that their clients will increase charitable giving in order to offset tax hikes, according to a recent study by the Fidelity Charitable Gift Fund. 

When asked which giving vehicle they expect to see increase in use over the next five years, 39% of advisers said donor-advised funds, compared to 20% who recommended private foundations. Additionally, 82% of advisers believe that a donor-advised fun is a valuable option for their clients.  

Donor-advised funds offer certain benefits over a private foundation, including donor anonymity, fewer administrative burdens, lower costs, and greater tax advantages, and advisers can play an important role in helping their clients choose the vehicle that best suits their needs, a press release said.  

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Advisers with experience with donor-advised funds recommended them for clients who seek an immediate tax deduction but want more time to decide where to disburse grants (65%), who have reached a certain asset level (60%), and those who want to keep and access all of their charitable records in one place (42%). 

Fifty-two percent of advisers reported proactively offering charitable planning advice, though 63% believe clients would be interested in it. The survey found that many advisers are reluctant to offer such advice because they see philanthropy as a client’s personal decision (44%), because clients have not requested help in the area (52%), and because they do not feel qualified or knowledgeable enough on the topic (31%). 

Eighty percent of advisers believe the number one benefit of offering advice on charitable planning to their clients is that it’s a relationship builder. Other top benefits are that it positions the adviser as a broad financial expert (72%), keeps assets under the adviser’s management (61%), and leads to a multi-generational relationship (56%). 

The 2010 Fidelity Charitable Gift Fund “Advice & Giving” survey gathered responses from more than 500 financial advisers about their approach to providing charitable planning advice. For more information, go to www.fidelity.com.  

 

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