Conservative target-date funds weathered the third quarter market rout

More conservative target-date funds — those favoring higher relative positioning in bonds — weathered the market rout best in the third quarter, according to target date fund analyst Janet Yang of Morningstar Inc.

(Related data: The best- and worst-performing target date funds of the third quarter)

Product providers and planners have been debating the degree to which the retirement-oriented allocation schemes should include equity exposures, particularly as workers approach the date of their anticipated retirement.

While bonds have long been considered protection against the risk of investing in stocks, some believe the low yields on bonds mean their security as a source of returns is in question.

“If you look at just the last few months, stocks have definitely struggled against bonds, whereas for the last five years, you’ve seen target date funds with more equity in them,” said Ms. Yang.

“It’s definitely a reminder that when you’re picking an equity strategy, you’re taking on more market risk,” she said. “The plan sponsors who were picking the more conservative strategies were doing it for these environments.”

Click here for all the third quarter data on target date funds