A12
S
KLMNO WASHINGTON BUSINESS
MICHELLE SINGLETARY The Color of Money
SEC rules would take surprises out of target-date mutual funds
mix of assets as you near retirement — are thought by many investors to be a safer investment choice that’s relatively insulated from market gyrations as the funds get closer to the target date. But lately, people on the verge
T
of retirement have been surprised to see how much these funds have been affected by recent turbulence on Wall Street. In some cases, the funds have performed far less well than had been anticipated. The Securities and Exchange Commission wants to prevent these surprises with new rules requiring greater transparency with these investments, also known as life-cycle funds. Many investors, the SEC found,
believe these funds become more conservative as their retirement date nears. In fact, the mix of stocks, bonds and cash investments varies widely among these funds. The funds became popular as a
“set it and forget it” strategy requiring little effort on the part of the investor. In fact, the selling point for life-cycle funds was that an individual investor didn’t have to worry about rebalancing the assets in his or her retirement fund, as many experts recommend. Instead, the asset allocation and rebalancing are done automatically, as though it were a machine that roasts a chicken and that can be ignored until the bird is done. Target-date funds were viewed
so favorably by the Labor Department that the agency allowed them to be a default selection in 401(k) plans. At the end of last year, target-date funds had $256 billion in assets, compared with $160 billion at the end of 2008, according to the Investment Company Institute. Eighty-four percent of assets in life-cycle funds are held in retirement accounts. The SEC found that funds with the same target date varied greatly in investment strategies and risks. Losses for 2010 funds ranged between 9 and 41 percent.
arget-date mutual funds — investment vehicles that automatically change your
whether such ranges should be permitted. Iwould vote against allowing
wide ranges. The more specific the companies have to be in disclosing the percentage of the asset mix, the better for investors. Marketing materials would
HARRY HAMBURG/ASSOCIATED PRESS
SEC Chairman Mary L. Schapiro has announced proposed rules for target-date retirement funds that would increase their transparency.
“Funds with near-term target
dates incurred substantial investment losses, notwithstanding that some investors expected them to have conservative asset allocations in the years leading up to the target date,” SEC Chairman Mary L. Schapiro said in announcing the proposed rules. “Imminent retirees invested in 2010 target-date funds saw, on average, 24 percent of their funds’ assets evaporate in 2008.” The SEC said that life-cycle funds with the same target date had equity exposures that ranged from 25 percent in stocks to 65 percent. It could be years after the target date is reached before a particular fund’s asset mix switched to a more conservative
approach. Under the SEC’s proposed rule
changes, marketing materials for a target-date fund would have to specifically disclose the asset allocation mix, and this information would have to appear with the fund’s name the first time that name is used. For example, the SEC says a
target-date fund with 2020 in its name would have to include a disclosure tag line adjacent to the name, which might be worded: “40 percent equity, 50 percent fixed income, 10 percent cash in 2020.” The proposed rule would allow an investment company to list ranges such as “40 percent to 45 percent” in a particular asset class. Schapiro said she’s interested in getting feedback on
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Daily Stock Market Performance Index
Dow Jones Industrial Average
11,600 10,900 10,200 9500 8800 8100
Nasdaq Composite Index
2600 2300 2000 1700
S&P 500 Index 1250 1175 1100 1025 950 875
1060.27 +3.1 –4.9 2159.47 +3.1 –4.8
have to include a table, chart or graph that clearly shows how the asset mix will change during the life of the fund. Investors would also have to be provided with a statement explaining that the mix can change and disclosing when all rebalancing stops. Most important, investment companies have to do a better job of making it clear that it’s possible to lose money investing in a target-date fund. If you read your investment material, you will probably already see language that says something such as “Investment returns and principal value will fluctuate, so that an investor’s shares, when sold, may be worth more or less than their original cost.” That’s the language used for the target-date funds offered in my company retirement plan. But it’s obvious that far too
many investors thought these funds came without risk and would set them up for retirement. “It is clear that investors need more information than just the date in a fund’s name,” Schapiro said. “They need context in order to evaluate what the date means.” If you want to comment on the proposed rule changes to target-date funds, you have until Aug. 23. You can post a comment at
www.sec.gov/rules/proposed. shtml or e-mail rule-comments@
sec.gov. Include “File No. S7-12-10” in the subject line.
singletarym@washpost.com
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions might be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.
THE MARKETS 10,018.28
Close %Chg +2.8
Daily
%Chg –3.9
YTD
Industry Group Airlines
S&P 500 Industry Group Snapshot Daily
Power Prodct & Enrgy Trdr Commercial Banks
Real Estate Mgmt & Dev Consumer Finance Multiline Retail Biotechnology
Diversified Telecomm Life Sciences
Construction Materials
%Chg 6.20 5.90 5.85 5.30 5.30 1.39 0.99
–0.05 –0.70 –1.29
International Stock Markets Daily
Americas
Brazil (Bovespa) Canada (S&P/TSX Comp.) Mexico (Bolsa) Europe
Eurozone (DJ Stoxx 600) France (CAC 40) Germany (DAX) U.K. (FTSE 100)
Asia Pacific J A S O N D J
Company 3M
Alcoa
AmExp AT&T BoA
Boeing
Caterpillar Chevron
Dow Jones 30 Industrials Daily
Close 80.52
10.55 41.15 24.33 14.71 63.30 62.18 69.45
Cisco Systems 22.48 Coca-Cola DuPont
51.47 35.25
Exxon Mobil 58.43 GE
Home Depot 28.01 HP
14.62 44.96
%Chg %Chg 3.0
3.3 –34.6 4.9
YTD –2.6 1.6
–0.3 –13.2 4.6 3.2 4.0 2.8 5.3 2.1 3.5 1.7 4.7 2.5 4.1
Other Measures Index
–2.3 16.9 9.1
–9.8 –6.1 –9.7 4.7
–14.3 –3.4 –3.2
–12.7 Close
DJ Total Stock Market Index 11,025.75 Russell 2000
611.66
Post-Bloomberg DC Area Index 179.73 CBOE Volatility (VIX)
26.84 F M A M J
Company IBM
Intel J&J
JPMorgCh Kraft Foods McDonald's Merck
Microsoft P&G Co Pfizer
Travelers Wal-Mart Walt Disney
Close 127.00
20.14 60.61 38.15 28.79 67.31 35.43 24.30 60.82 14.62 49.95
United Tech 66.55 Verizon
26.52 48.92 33.14
Daily
3.4 2.6 5.0 1.9 1.8 2.3
%Chg %Chg 2.9
YTD –3.0
–1.3 –5.9 –8.4 5.9 7.8
2.0 –20.3 2.5
2.3 –19.6 2.8 3.0
–0.3 –14.3 0.7 4.5
–4.1 –8.5
2.8
Interest Rates Consumer Rates
Daily%Chg YTD%Chg 3.2 3.7 2.6
–9.5
–4.1 –2.2 –4.1 23.8
Money market funds 6-Month CDs 1-Year CDs 5-Year CDs New car loan Home-equity loan
0.75 0.81 1.15 2.52 6.35 7.39
0.53% 0.25% 3.25%
Bank Prime Federal Funds LIBOR 3-Month
3.20% 4.08% 4.69%
30-Year fixed mortgage 15-Year fixed mortgage 1-Year ARM
–3.0 0.3 0.2
Australia (ASX 200) China (CSI 300) Hong Kong (Hang Seng) Japan (Nikkei)
4254.60 2580.48 19,857.07 9279.65
Cross Currency Rates EU €
US $
US $ per EU € per
Japan ¥ per Britain £ per Brazil R$ per
Canada $ per Mexico $ per
0.7908 87.6600 110.8500
0.6586 0.8327 0.0075 1.7657 1.0473
2.2326 0.0201 1.3243 0.0119
12.8436 16.2381 0.1470
–0.5 0.7
–1.1 –0.6 Japan ¥
1.2645 0.0114 0.0090
Britain £
1.5184 0.5664 1.2009 0.4479
Brazil R$ Canada $ Mexico $ 0.9548 0.0779 0.7551 0.0616
133.1100 49.6463 83.7000 6.8260 0.3730
2.6806 1.5902 0.5932 19.5016
0.6288 0.0513 1.6856 0.1375 0.0815
7.2740 12.2633 Close
63,283.80 11,397.27 32,035.19
246.06
3483.44 5992.86 5014.82
%Chg 2.0 1.8 1.6
1.4 1.8 0.9 1.0
YTD%Chg –30%
–8.0% 0 +8.0%
Commodities Futures
Copper Corn
Crude Oil Gold
Natural Gas
after two-day rally Even BP shares rise as optimism grows on 2nd-quarter earnings
by Frank Ahrens
U.S. stocks completed their first back-to-back winning days since mid-June on Wednesday, as the Dow Jones industrial average re- corded a 275-point surge and cracked back through the 10,000 level. Tuesday’s bargain hunters yielded to Wednesday’s optimistic buyers, who are anticipating strong second-quarter earnings in the coming days. Financial ser- vices company State Street, which caters mostly to institutional in- vestors, kicked off the Wednesday rally when it forecast second- quarter earnings that exceeded Wall Street’s expectations. That lifted other banking stocks and led the financial sector of the Standard & Poor’s 500-stock in- dex to a 4.4 percent gain. The Dow closed up 2.8 percent
at 10,018.28, with all 30 blue-chip stocks finishing in positive terri- tory. The Dow is up for July but still down 3.9 percent for the year. The broader S&P 500 closed up 32.21, or 3.1 percent, at 1060.27, while the tech-heavy Nasdaq closed up 65.59, or 3.1 percent, at 2159.47. Even shares of beleaguered en-
ergy giant BP joined the party. The stock rose 4 percent, largely on news that company chief exec- utive Tony Hayward met with Abu Dhabi’s crown prince on Wednes-
Dow above 10,000
day, fueling speculation that the United Arab Emirates might buy a substantial BP stake. The question now is whether stocks can string together a rally that lasts more than two days, as the doldrums of summer settle in and the wobbly economic recov- ery appears to be slowing down. History would suggest not, as
July has tended to be a highly volatile month on Wall Street. And the U.S. economy is strug- gling with 9.5 percent unemploy- ment and a private sector that is reluctant to create jobs. Analysts, having seen the Dow drop 15 per- cent since its peak in April — a 20 percent drop would indicate a bear market — sounded the same cautious refrain on Wednesday: Two good days does not a lasting rally make.
Some were even more bearish.
“The fall-back position of the eco- nomic cheerleaders is that, while the March 2009 low was a major long-term low, a future retest of those same levels cannot be ruled out,” wrote Walter Zimmermann, chief technical analyst at United- ICAP brokerage. But strong corporate earnings could change a lot. Bloomberg is predicting that profit for compa- nies in the S&P 500 will rise 34 percent this year, an increase over a March estimate, which put the yearly profit growth at 27 percent. Next week will bring a slew of earnings reports from big compa- nies, including Bank of America, railroad company CSX and Yum Brands, which owns KFC, Taco Bell and other restaurants.
ahrensf@washpost.com
Fannie, Freddie to trade over the counter
Associated Press Shares of Fannie Mae and
Freddie Mac will begin trading over the counter Thursday, nearly a month after the mortgage-fi- nance giants said they could no longer meet the New York Stock Exchange’s listing requirements. Fannie Mae’s common stock
will trade under the symbol FNMA. Its preferred shares also will be listed. Freddie Mac’s com- mon stock will trade under the symbol FMCC. Investors will be able to trade Freddie Mac’s 20
classes of preferred stock. The government took over the companies in September 2008 af- ter they suffered huge loan losses. Last month, their regulator, the Federal Housing Finance Agency, said that Fannie’s shares had been below the $1 average price level for 30 trading days. NYSE rules require a company to take action to boost its shares or de- list. Freddie’s shares have hov- ered close to the $1 mark. In their last day on the NYSE,
Freddie shares closed down 5 per- cent at 34 cents. Fannie slid 17 percent to close below 25 cents.
Data and graphics by
THURSDAY, JULY 8, 2010
$3.0055 $3.7075 $74.07
$1198.90 $4.57
Close %Chg +1.5 +3.0 +2.9 +0.3 –2.5
Daily
Orange Juice Silver
Soybeans Sugar Wheat
Value of $1000 invested for the past: Daily
0% +30%
Exchange-Traded (Ticker) %Chg Coffee (COFF.L) Copper (COPA.L) Corn (CORN.L) Cotton (COTN.L) Crude Oil (CRUD.L) Gasoline (UGAS.L) Gold (BULL.L)
0.6 0.7 0.1
–1.7 0.2 0.0 0.3
Natural Gas (NGAS.L) Silver (SLVR.L)
Gainers
–5.0 1.2
Gainers and Losers from the S&P 1500 Index Daily
Perry Ellis Intl PolyOne La-Z-Boy AES Corp
Veeco Instruments Netflix
Tuesday Morning National Financial Liz Claiborne Spherion
Seahawk Drilling State Street
SpartanMotors Inc MarineMax
Take-TwoInteractive EthanAllenInteriors TrueBlue Inc
GibraltarIndustries AK Steel Holding Cliffs Natural Res
10-year note Yield:
5-year note Yield:
2.98 1.78
4:30 p.m. New York time.
Close %Chg $19.19 13.9
$8.41 13.0 $7.19 11.0 $9.86 10.8 $37.59 10.5 $118.49 10.5 $3.89 10.2 $10.20 10.2 $4.42 10.0 $5.42 9.9 $9.89 9.9 $36.63 9.9 $4.02 9.5 $6.96 9.4 $9.75 9.4 $13.69 9.1 $10.94 9.1 $10.57 9.0 $12.55 8.9 $48.43 8.9
Losers Affymetrix FTI Consulting
FamilyDollarStores Martek Biosciences LoJack Corp
Dollar Tree Inc StarTek
Standard Register Smithfield Foods Emergent Biosol
PhoenixTechnologies Martin Marietta Forestar Group Inc LCA-Vision
Amedisys Inc Life Tech Corp
Vulcan Materials
Close %Chg $4.04 –27.2
Daily
$32.14 –25.7 $36.26 –8.1 $21.03 –7.0 $3.40 –5.0 $41.61 –3.1 $3.93 –2.5
EdwardsLifesciences $55.24 –2.4 Centene
$21.08 –2.2 $2.83 –2.1 $13.91 –1.9 $15.53 –1.9 $2.86 –1.7 $85.75 –1.6 $16.78 –1.5 $5.38 –1.5 $35.30 –1.4 $45.73 –1.3 $43.74 –1.3
BJ'sWholesale Club $42.72 –1.1 Treasury Performance Over Past Three Months
2-year note Yield:
6-month bill Yield:
0.62 0.19
Note: Bank prime is from 10 major banks. Federal Funds rate is the market rate, which can vary from the federal target rate. LIBOR is the London Interbank Offered Rate. Consumer rates are from Bankrate. All figures as of
day $700 $1000
$1.4575 $17.98
Close %Chg –1.1
Daily
$9.9300 $0.1706 $5.1575
+0.8 +3.0 +2.2 +4.7
month $1300
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