Using a Target Date Benchmark
Thomas Idzorek, CFA®
Global Chief Investment Officer,
Morningstar Investment Management
Jeremy Stempien
Director, Investments
Morningstar Investment Management, Retirement Solutions
Current Draft: April 5, 2012
Initial Draft: July 18, 2011
Introduction
By their very nature, target date funds are complex investments. This complexity makes them
especially challenging to benchmark, with each fund containing unique attributes and features that
ideally should be addressed individually based on the unique goals and situation of the potential
investor. In our first article related to this topic, “Selecting a Target Date Benchmark,” we assumed
that a stakeholder had already selected a target date fund family and the remaining challenge was
to select the most appropriate target date index family. 1 Here, we build from that ending point, now
assuming that both a target date fund family and a target date benchmark have been selected
(rightly or wrongly), and we must now use the target date benchmark in the most appropriate
manner possible.
We emphasize the word—appropriate—because the use of target date benchmarks for
benchmarking target date funds is significantly more nuanced than traditional benchmarking,
requiring greater skill and interpretation. Perhaps most unsatisfyingly, regardless of the skill of the
benchmarker, it will not definitively answer the question that investors, plan sponsors, and advisors
care about the most: is the glide path of the fund family “good” and appropriate for a given
investor? 2 Therefore, the first point of this article is that benchmark-relative comparisons will not tell
you if the glide path itself is “good.” While the underlying fund managers (sub-funds) are important,
we believe the evolving asset allocation is going to be the primary driver of performance and have
the greatest impact on the level of returns and income realized by the investor. The remainder of
this article explores the appropriate use of a target date benchmark, and includes a concrete
example of how to benchmark a target date fund / fund family.
Let’s start by addressing the rare instance in which the use of a target date benchmark for
benchmarking a target date fund is every bit as powerful and is analogous to the traditional
benchmarking problem. This rare situation occurs when a fund complex licenses a specific target
date index and then hires an investment manager to track or attempt to outperform the target date
index on a risk-adjusted basis. In this situation, the glide path and detailed asset class weighting
scheme of the target date index is not questioned; it is accepted as a given. Hence, the question of
a “good” or “bad” glide path is moot, and one can return to the standard benchmarking practice of
evaluating the active decisions (departures) of the manager relative to the benchmark.
In all other cases the target date benchmark should not be unambiguously accepted as “good.” As
such, the performance of a target date fund relative to a target date benchmark is open to
interpretation. Notice that we have stopped significantly short of saying that the relative
performance is meaningless. This relative performance—the active return relative to the
1
More specifically, Idzorek, Stempien, and Voris (2011) introduces objective qualitative and quantitative measures for selecting a
best fit index family for a given target date fund family.
2
We place the word “good” in quotes because there is not a concrete and universally agreed upon definition of good in this
context.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
2
benchmark—must be understood and from there, meaningful insights determined. Understanding
and interpreting the causes of the relative performance is fundamentally more challenging than it is
for traditional benchmarking.
Additionally, the scope of the problem goes well beyond the benchmarking of a single fund, rather
the goal is typically to benchmark all of the five-to-12ish target date funds that make up a target
date fund family, a process that requires one to analyze and benchmark the 10-to-50 or so subfunds used within the family in hopes of making an assessment of the performance of the overall
fund family.
As a brief warning, in this extended version of our article, we show a large number of tables to
make the framework as transparent and as easy as possible for the ambitious or diligent practitioner
to replicate.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
3
A Case Study
This article will focus primarily on the complications associated with benchmarking the largest retail
target date fund family, the Fidelity Freedom Funds family, relative to the Morningstar Moderate
Lifetime Allocation Index family. Idzorek, Stempien, and Voris (2011) shows quantitatively that the
Morningstar Moderate Lifetime Allocation Index family happened to be the overall “best fit”
benchmark for the Fidelity Freedom Funds family. For other fund families the best fit benchmark
family might be another industry benchmark such as one of the other Morningstar Lifetime
Allocation indices, the S&P Target Date Benchmark family, or one of the three Dow Jones Target
Date index families. As we move forward, it will quickly become evident that the appropriate use of
a target date benchmark, or more generally speaking, an appropriate benchmarking analysis of a
target date fund family, is a data- and labor-intensive exercise, albeit a required necessity given the
growing importance of target date funds. As we advance through our analysis, due to space
constraints, we will focus on the Fidelity Freedom 2030 fund, although keep in mind that the same
process is repeated for each of the other 11 funds that make up the Fidelity Freedom Funds family
(less the recently introduced 2055 fund). At the end of our analysis, we present a summary for the
entire fund family.
Adjusting the Benchmark
Table 1 includes a variety of annualized statistics based on five years of quarterly data for each of
the funds that make up the Fidelity Freedom Funds family, the corresponding target date indexes
from the Morningstar Moderate Lifetime Allocation Index family, and the corresponding differences
from October 2006 to September 2011. In practice (and data permitting), one would like to look at
these statistics for various periods, such as 12 months, 60 months, 120 months, and since
inception. This data may not be available for funds and target date index series with limited history.
In Table 1, over this five-year period, we see that in almost all cases, the Morningstar Moderate
Lifetime Allocation Index had a better annualized arithmetic return, geometric return, standard
deviation, and Sharpe Ratio than the respective Fidelity Freedom Fund. While this is suggestive of
poor relative performance for the Fidelity Freedom Funds over this particular time period, before
reaching this conclusion we must dig deeper.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
4
Table 1: Performance Comparison (December 2006 – September 2011)
Fidelity Freedom 2050
N Periods
20
Morningstar Lifetime Moderate 2050
20
Difference
Arithmetic
Mean (%)
1.05
Geometric
Mean (%)
-1.45
Standard
Deviation (%)
22.98
Sharpe Ratio
-0.02
Number of
Drawdowns
1
Skewness
-0.35
Kurtosis
-0.36
-0.42
3.35
1.02
22.53
0.08
2
-0.23
-2.30
-2.47
0.45
-0.10
-1
-0.12
0.06
Fidelity Freedom 2045
20
1.35
-0.96
22.09
-0.01
1
-0.35
-0.34
Morningstar Lifetime Moderate 2045
20
3.29
1.00
22.35
0.08
2
-0.24
-0.42
Difference
Fidelity Freedom 2040
20
-1.94
1.36
-1.95
-0.88
-0.26
21.77
-0.09
-0.01
-1
1
-0.11
-0.36
0.09
-0.28
Morningstar Lifetime Moderate 2040
20
-0.43
Difference
Fidelity Freedom 2035
20
Morningstar Lifetime Moderate 2035
3.26
1.01
22.10
0.08
2
-0.25
-1.90
-1.89
-0.33
-0.09
-1
-0.11
0.14
1.47
-0.64
21.17
0.00
1
-0.36
-0.30
20
3.29
1.13
21.63
0.08
2
-0.25
-0.43
Difference
Fidelity Freedom 2030
20
-1.81
1.81
-1.78
-0.13
-0.46
20.31
-0.08
0.01
-1
1
-0.11
-0.35
0.13
-0.20
Morningstar Lifetime Moderate 2030
20
-0.43
Difference
Fidelity Freedom 2025
20
Morningstar Lifetime Moderate 2025
3.48
1.55
20.51
0.09
2
-0.24
-1.66
-1.67
-0.20
-0.08
-1
-0.11
0.23
2.33
0.69
18.73
0.04
2
-0.33
-0.14
20
3.85
2.28
18.53
0.12
2
-0.21
-0.44
Difference
Fidelity Freedom 2020
20
-1.52
2.60
-1.59
1.17
0.20
17.48
-0.08
0.06
0
2
-0.12
-0.32
0.29
0.00
Morningstar Lifetime Moderate 2020
20
Difference
4.31
3.14
15.99
0.17
2
-0.18
-0.44
-1.71
-1.97
1.49
-0.11
0
-0.15
0.44
Fidelity Freedom 2015
20
2.95
1.93
14.80
0.10
2
-0.29
0.04
Morningstar Lifetime Moderate 2015
20
4.69
3.86
13.52
0.23
2
-0.16
-0.42
Difference
Fidelity Freedom 2010
20
-1.74
3.06
-1.93
2.14
1.27
14.08
-0.14
0.11
0
2
-0.13
-0.27
0.46
0.05
Morningstar Lifetime Moderate 2010
20
Difference
4.93
4.33
11.58
0.29
2
-0.18
-0.37
-1.87
-2.18
2.51
-0.18
0
-0.09
0.43
Fidelity Freedom 2005
20
2.96
2.16
13.09
0.11
2
-0.29
0.24
Morningstar Lifetime Moderate 2005
20
5.05
4.58
10.13
0.35
3
-0.25
-0.30
Difference
Fidelity Freedom 2000
20
-2.09
3.39
-2.42
3.11
2.96
7.76
-0.24
0.24
-1
3
-0.04
-0.32
0.54
0.84
Morningstar Lifetime Moderate 2000
20
Difference
5.06
4.69
9.07
0.39
3
-0.36
-0.18
-1.67
-1.57
-1.31
-0.15
0
0.04
1.03
Fidelity Freedom Income
20
3.51
3.28
7.12
0.28
3
-0.21
0.88
Morningstar Lifetime Moderate Income
20
5.00
4.67
8.42
0.41
4
-0.50
-0.03
Difference
-1.49
-1.40
-1.30
-0.13
-1
0.29
0.92
Average Difference
-1.81
-1.90
0.42
-0.12
-0.58
-0.06
0.39
Source: Morningstar Encorr.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
5
The final row of Table 1 shows that, on average, the Fidelity Freedom Fund family underperformed
the respective Morningstar Moderate Index family by 181 basis points per year during this five-year
analysis. To better understand where this difference comes from we’ll start by reviewing the
respective glide paths, which are presented in Figure 1. A quick review of Figure 1 reveals the
varying level of equity exposure between the Fidelity Freedom funds and the Morningstar Lifetime
Moderate indexes. With the exception of the 2010 fund, almost all of the Fidelity Freedom funds
have less equity exposure than the corresponding target date index.
Figure 1: Glide Path Comparison (based on data as of September 30, 2011)
100%
Morningstar Lifetime Moderate Index
Equity
80%
60%
Fidelity Freedom Funds
40%
20%
0%
2055 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 2000 Income
Source: Morningstar Direct
Target Date
In Figure 1 we included the Fidelity Freedom 2055 fund for completeness, although this fund was
omitted from the analysis because its inception date was June 2011 (and therefore it did not have
the necessary historical data to perform an adequate analysis). The different equity exposure levels
would typically lead one to expect different risk and return characteristics between the target date
fund and its corresponding index. In the benchmarking literature (see for example Siegel (2003)), it
is widely recognized that the returns of a benchmark should be “risk-adjusted” or more specifically,
“beta-adjusted” so that the fund and benchmark in question have similar overall risk exposures (i.e.,
level the playing field). To do this, we calculated a rolling 12-month beta for each of the Fidelity
Freedom Funds relative to their corresponding Morningstar Moderate Lifetime Allocation Index, and
then used these rolling betas to create a separate beta-adjusted return series for each of the
Morningstar Moderate Lifetime Allocation Indexes. Thus, in Table 2 we compare each of the Fidelity
Freedom funds relative to a beta-adjusted version of the Morningstar Moderate Lifetime Allocation
Index.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
6
Table 2: Beta-Adjusted Performance Comparison (December 2006 – September 2011)
N Periods
Arithmetic
Mean (%)
Geometric
Mean (%)
Standard
Deviation (%)
Sharpe
Ratio
Number of
Drawdowns
Skewness
Kurtosis
Fidelity Freedom 2050
20
1.05
-1.45
22.98
-0.02
1
-0.35
-0.36
Morningstar Moderate 2050 (Beta-Adjusted)
20
2.77
0.37
22.76
0.05
1
-0.26
-0.47
–1.72
–1.82
0.22
–0.08
0
–0.09
0.10
1.35
–0.96
22.09
–0.01
1
–0.35
–0.34
Difference
Fidelity Freedom 2045
20
Morningstar Moderate 2045 (Beta-Adjusted)
20
2.58
0.37
21.86
0.05
1
–0.27
–0.46
Difference
Fidelity Freedom 2040
20
–1.24
1.36
–1.32
–0.88
0.22
21.77
–0.06
–0.01
0
1
–0.08
–0.36
0.13
–0.28
Morningstar Moderate 2040 (Beta-Adjusted)
20
–0.43
Difference
Fidelity Freedom 2035
20
Morningstar Moderate 2035 (Beta-Adjusted)
2.43
0.27
21.55
0.04
1
–0.27
–1.07
–1.15
0.22
–0.05
0
–0.08
0.15
1.47
–0.64
21.17
0.00
1
–0.36
–0.30
20
2.49
0.46
20.92
0.05
2
–0.28
–0.45
Difference
Fidelity Freedom 2030
20
–1.02
1.81
–1.10
–0.13
0.25
20.31
–0.05
0.01
–1
1
–0.08
–0.35
0.15
–0.20
Morningstar Moderate 2030 (Beta-Adjusted)
20
–0.41
Difference
2.64
0.76
20.08
0.05
1
–0.27
–0.82
–0.89
0.23
–0.04
0
–0.08
0.21
Fidelity Freedom 2025
20
2.33
0.69
18.73
0.04
2
–0.33
–0.14
Morningstar Moderate 2025 (Beta-Adjusted)
20
3.18
1.69
17.97
0.09
2
–0.24
–0.48
Difference
Fidelity Freedom 2020
20
–0.85
2.60
–1.00
1.17
0.76
17.48
–0.05
0.06
0
2
–0.09
–0.32
0.34
0.00
Morningstar Moderate 2020 (Beta-Adjusted)
20
Difference
3.57
2.30
16.60
0.12
2
–0.23
–0.45
–0.97
–1.13
0.89
–0.06
0
–0.09
0.45
Fidelity Freedom 2015
20
2.95
1.93
14.80
0.10
2
–0.29
0.04
Morningstar Moderate 2015 (Beta-Adjusted)
20
3.92
3.06
13.63
0.17
2
–0.25
–0.44
Difference
Fidelity Freedom 2010
20
–0.96
3.06
–1.13
2.14
1.17
14.08
–0.08
0.11
0
2
–0.04
–0.27
0.48
0.05
Morningstar Moderate 2010 (Beta-Adjusted)
20
Difference
4.44
3.71
12.62
0.23
2
–0.27
–0.39
–1.37
–1.57
1.47
–0.12
0
0.00
0.45
Fidelity Freedom 2005
20
2.96
2.16
13.09
0.11
2
–0.29
0.24
Morningstar Moderate 2005 (Beta-Adjusted)
20
4.48
3.85
11.68
0.25
2
–0.42
–0.10
Difference
Fidelity Freedom 2000
20
–1.52
3.39
–1.69
3.11
1.41
7.76
–0.14
0.24
0
3
0.12
–0.32
0.34
0.84
Morningstar Moderate 2000 (Beta-Adjusted)
20
Difference
Fidelity Freedom Income
20
Morningstar Moderate Income (Beta-Adjusted)
20
3.65
3.46
6.46
0.33
3
–0.50
–0.06
–0.26
–0.34
1.30
–0.09
0
0.18
0.90
3.51
3.28
7.12
0.28
3
–0.21
0.88
–0.03
3.73
3.58
5.76
0.38
3
–0.56
Difference
–0.22
–0.30
1.36
–0.10
0
0.35
0.92
Average Difference
–1.00
–1.12
0.79
–0.08
–0.08
0.00
0.38
Source: Morningstar EnCorr
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
7
In comparison to Table 1, the beta-adjusted performance comparison in Table 2 is much closer. For
example, the average annual arithmetic return differential shrunk from 181 basis points of
underperformance per year for the Fidelity Freedom Funds to 100 basis points of underperformance
per year. Shortly, we will begin to focus on the highlighted negative 82 basis points of
underperformance of the Fidelity Freedom 2030 fund. From a target date benchmarking
decomposition stand point, Table 2 provides us with a starting point; a return differential or active
return between the fund in question and the corresponding beta-adjusted return of the benchmark
that must be decomposed. More specifically, the quantity that must be decomposed and
understood is the following:
(1) Fund Return – Beta-Adjusted Benchmark Return = Active Return
The active return is then decomposed into four parts – asset allocation, sub-fund alphas, glide path
fee, and other – using Formula 2.
(2) Active Return =
Asset Allocation
a)
Return of the Effective Asset Allocation of Fund – (Beta * Return of the Benchmark)
Sub-Fund Alphas
b)
+
Weighted Average Pure (Net of Fee) Alphas of Sub-Funds
Glide Path Fee
c)
–
(Overall Fund Fee – Weighted Average Fee of Sub-Funds)
Other
d)
+
Other
Let’s briefly elaborate on some of the items in Formula 2 before going into greater detail as we apply
this target date benchmarking attribution framework.
Return of the Effective Asset Allocation of Fund—Using a form of style analysis (holdings-based,
returns-based, or a hybrid) the effective asset allocation of the fund in question must be estimated.
Our preferred approach for this step is to use holdings-based analysis to infer the current effective
asset allocation of the fund. The return for a given period is then the weighted average return on the
standard indexes that represent the various asset classes, such as Morningstar U.S. Small Value for
U.S. small value and the FTSE NAREIT All Equity REITs for U.S. REITs.
Beta—The Beta in question is calculated from a time-series regression of the fund against the
benchmark. Our preference is to use a relatively short rolling window, in our case 12-month rolling
betas, to capture the relatively recent and ever evolving relationship between the fund and
benchmark.
Weighted Average Pure (Net of Fee) Alphas of Sub-Funds—A custom, multi-asset class
benchmark is estimated using a form of style analysis for each of the sub-funds (underlying funds)
and from each of those evolving custom style benchmarks a period-by-period alpha is estimated. For
a given period, these sub-fund alphas are coupled with the allocation to each sub-fund to determine
the weighted-average alpha for that particular period. For example, if a 2045 fund consisted of 23
individual sub-funds, a custom benchmark is created for each of the 23 sub-funds and 23 alphas are
estimated. Our preferred approach for estimating the evolving multi-asset class custom benchmark
is to use rolling 36-month returns-based style analysis (see Sharpe 1992). We believe this approach
does a reasonable job estimating the custom benchmark, and gives the sub-funds credit for both
security selection and market timing. In contrast with the overall fund in which we expect its overall
stock bond split to glide down overtime, the sub-funds typically track traditional, individual asset
class indexes.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
8
Overall Fund Fee—This is simply the “all-in” fee to the end investor.
Weighted Average Fee of Sub-Funds—In part “b” when estimating the alphas of the underlying
funds, the analysis is conducted using returns net of fees rather than gross returns. This enables us
to see if individual sub-funds are producing enough alpha to overset their specific fees. However, to
avoid double counting these fees, we use the weight of each sub-fund to calculate the weighted
average fee of the underlying funds that we then subtract from the Overall Fund Fee. The Overall
Fund Fee minus the Weighted Average Fee of Sub-Funds represents a glide path fee of sorts.
Other—In this case “other” is a plug that enables the equation to hold perfectly and can be thought
of as the error term. In most cases it is a small number. There are a number of potential sources of
“other,” including tactical asset allocation at the overall fund level as well as estimation errors
associated with the other estimated values—asset allocation, sub-fund alpha, and fees.
Unfortunately, for any given period the estimation errors associated with asset allocation and the
sub-fund alphas can be significant. Fortunately, over several time periods these estimation errors
tend to cancel each other out (i.e. they tend to be evenly distributed around zero).
Our goal is now straightforward. If we can estimate the inputs (albeit with some errors) for our
decomposition formula, we can completely decompose the active returns relative to the benchmark
period by period. We will now attempt to apply this return attribution / decomposition framework to
the Fidelity Freedom 2030 fund in order to better understand the annual arithmetic return difference
of negative 82 basis points between Fidelity Freedom 2030 fund and the Morningstar Moderate
2030 (beta-adjusted) series. Moving forward we will be working with quarterly data (corresponding
to the quarterly reported holdings), and will thus attempt to decompose the slightly more than
negative 20 basis points of average quarterly underperformance.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
9
Asset Allocation
Let’s start with a brief overview of some pertinent information on the Fidelity Freedom fund family
that will facilitate a number of our calculations. Like most target date funds, the Fidelity Freedom
Funds are funds of funds. Figure 2 displays the evolving allocations to the underlying sub-funds that
have made up the Fidelity Freedom 2030 fund during the past five years.
Figure 2: Underlying Funds – Fidelity Freedom 2030 Fund (December 2006 – September 2011)
Source: Morningstar Direct
While Figure 2 is visually interesting, as you might expect this data is more useful in tabular format;
thus, Table 3 displays the evolving weights of the sub-funds that make up the Fidelity Freedom 2030
fund. At the bottom of the table we have identified the number of sub-funds with an allocation at
each point in time. The fewest number of sub-funds used during the analysis period was 21 and the
most was 26. Although we won’t use this information for a while, the final row lists the weighted
average quarterly fee of the sub-funds that are used at each point in time.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
10
Table 3: Sub-Funds – Fidelity Freedom 2030 (December 2006 – September 2011)*
Sub-Fund Name
Ticker
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2007
June
2008
Sept
2008
Dec
2008
March
2009
Fidelity Series All-Sector Equity
FSAEX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4.52
6.53
Fidelity Series Large Cap Value
FLVSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
3.31
5.48
Fidelity Disciplined Equity
FDEQX
9.76
9.78
10.01
10.47
11.63
12.17
12.74
13.01
12.59
11.77
Fidelity Series Commodity Strategy
FCSSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Growth Company
FDGRX
6.59
7.01
7.13
7.70
7.81
7.81
8.35
8.50
8.85
9.26
Fidelity Series 100 Index
FOHIX
0.00
0.00
1.24
9.71
9.62
9.97
9.06
10.13
10.10
9.25
Fidelity Series International Growth
FIGSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Series International Value
FINVX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity High Income
SPHIX
3.72
3.64
3.47
3.48
3.74
3.95
3.90
3.90
3.80
4.18
Fidelity Capital & Income
FAGIX
3.61
3.68
3.54
3.49
3.72
3.84
3.86
3.77
3.57
3.88
Fidelity Overseas
FOSFX
4.22
4.11
4.11
4.21
3.97
4.46
4.52
4.29
5.09
5.02
Fidelity Diversified International
FDIVX
4.17
4.07
4.04
4.08
3.99
4.57
4.72
4.41
5.09
5.15
Fidelity Blue Chip Growth
FBGRX
9.46
8.59
7.13
5.97
4.09
3.76
3.62
3.47
3.18
3.13
Fidelity Series Emerging Markets
FEMSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.05
0.44
Fidelity Series Small Cap Opps
FSOPX
0.00
0.00
1.51
1.64
1.61
1.67
1.68
1.83
1.67
1.58
Fidelity Series International Sm Cap
FSTSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.0
Fidelity Small Cap Value
FCPVX
0.50
0.87
0.84
0.79
0.87
0.90
0.86
1.09
1.03
0.96
Fidelity Small Cap Growth
FCPGX
0.50
0.88
0.87
0.85
0.93
0.91
0.95
0.95
0.90
0.90
Fidelity Series Investment Grade Bond
FSIGX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1.88
7.64
Fidelity Strategic Real Return
FSRRX
2.00
2.01
1.97
2.06
2.16
2.41
2.45
2.49
2.55
2.48
Fidelity Equity-Income
FEQIX
10.16
9.77
10.08
10.36
10.97
11.39
11.41
12.96
12.39
10.76
Fidelity Europe
FIEUX
5.83
5.68
5.61
5.69
5.70
5.52
5.30
4.30
4.16
3.4
Fidelity Japan
FJPNX
1.64
1.65
1.57
1.52
1.52
1.51
1.47
1.28
1.31
1.20
Fidelity Total Bond
FTBFX
0.00
0.00
1.24
1.98
2.69
2.34
2.22
2.30
2.64
2.79
Fidelity Emerging Asia
FSEAX
0.00
0.85
0.94
1.02
0.75
0.67
0.59
0.50
0.49
0.29
Fidelity Value
FDVLX
5.10
6.52
7.10
7.12
7.25
7.29
7.60
7.94
4.03
3.53
Fidelity Government Income
FGOVX
2.45
2.51
2.19
2.11
2.24
2.55
2.97
3.87
1.52
0.3
Fidelity Mid-Cap Stock
FMCSX
6.60
7.61
7.52
7.41
7.15
5.74
5.63
3.67
0.00
0.00
Fidelity OTC
FOCPX
5.12
4.74
4.03
3.66
2.98
2.06
1.84
0.78
0.00
0.00
Fidelity Investment Grade Bond
FBNDX
3.45
3.50
0.00
0.00
0.00
0.00
0.00
2.93
3.37
0.00
Fidelity Growth & Income
FGRIX
10.40
9.32
8.97
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Stock Selector Sm Cp
FDSCX
0.00
1.22
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Intermediate Bond
FTHRX
1.96
2.00
1.79
1.71
1.69
1.61
1.52
1.63
1.92
0.00
Fidelity Small Cap Independence
FDSCX
1.29
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Southeast Asia
FSEAX
0.88
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity
FFIDX
0.58
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Inv Grade Bd Inc
FBNDX
0.00
0.00
3.11
2.97
2.93
2.88
2.74
0.00
0.00
0.00
Fidelity Series Inflation-Prtct Bd Idx
FSIPX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Series Emerging Markets Debt
FEDCX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.0
Fidelity Series High Income
FSHNX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
100
23
100
22
100
24
100
23
100
23
100
23
100
23
100
23
100
25
100
23
–0.19
–0.19
–0.19
–0.18
–0.18
–0.19
–0.19
–0.18
–0.17
–0.19
Total
Used
Weighted Average Fee
Source: Morningstar Direct.
* Three of the tickers are listed twice due to name changes associated with the sub-fund.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
11
Table 3 Continued: Sub-Funds – Fidelity Freedom 2030 (December 2006 – September 2011)*
Sub-Fund Name
Ticker
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
June
2011
Sept
2011
Fidelity Series All-Sector Equity
FSAEX
8.81
Fidelity Series Large Cap Value
FLVSX
10.11
8.97
8.98
9.12
9.14
9.57
10.22
10.33
10.03
9.80
9.21
9.16
9.55
9.96
9.86
9.65
9.37
9.21
8.54
Fidelity Disciplined Equity
FDEQX
11.29
Fidelity Series Commodity Strategy
FCSSX
0.00
11.25
10.99
10.16
9.11
8.47
8.42
0.00
1.59
3.38
5.10
6.73
7.50
8.16
8.08
7.58
7.37
6.94
Fidelity Growth Company
FDGRX
9.45
9.49
9.37
8.62
7.65
7.42
6.94
7.28
7.26
7.35
Fidelity Series 100 Index
FOHIX
7.54
7.43
7.26
6.82
6.10
7.14
5.75
5.73
5.55
5.52
Fidelity Series International Growth
FIGSX
0.00
0.00
0.46
1.10
5.54
2.45
3.99
5.00
5.22
5.75
Fidelity Series International Value
FINVX
0.00
0.00
0.46
5.87
1.09
2.39
3.92
4.91
5.07
5.73
Fidelity High Income
SPHIX
3.76
3.68
5.52
3.77
3.76
3.97
3.75
3.61
0.00
0.00
Fidelity Capital & Income
FAGIX
3.76
0.00
3.91
4.07
3.97
3.94
3.76
3.61
0.00
0.00
Fidelity Overseas
FOSFX
0.00
5.29
5.38
5.27
5.00
4.18
4.01
3.07
2.62
1.61
Fidelity Diversified International
0.77
FDIVX
5.32
5.40
5.44
5.20
4.29
3.99
3.05
2.62
1.59
0.82
Fidelity Blue Chip Growth
FBGRX
2.86
2.96
2.95
2.88
2.79
2.92
3.07
2.91
2.92
2.85
Fidelity Series Emerging Markets
FEMSX
1.11
1.15
1.35
1.72
2.25
2.76
3.03
3.08
3.51
3.62
Fidelity Series Small Cap Opps
FSOPX
1.58
1.68
1.65
1.67
1.55
1.53
1.60
1.60
1.58
1.43
Fidelity Series International Sm Cap
FSTSX
0.00
0.00
0.10
0.22
0.48
0.77
1.00
1.02
1.21
1.29
Fidelity Small Cap Value
FCPVX
0.94
0.97
0.95
0.99
0.96
0.96
0.97
0.93
0.91
0.84
Fidelity Small Cap Growth
FCPGX
0.94
0.96
0.96
0.99
0.95
0.95
0.97
0.95
0.95
0.86
Fidelity Series Investment Grade Bond
FSIGX
8.68
8.08
8.34
10.85
13.57
12.97
13.68
15.49
16.48
18.79
Fidelity Strategic Real Return
FSRRX
2.76
2.61
2.65
2.54
3.35
3.16
3.00
3.20
3.17
3.41
Fidelity Equity-Income
FEQIX
9.38
9.67
8.40
5.75
3.30
1.42
0.00
0.00
0.00
0.00
Fidelity Europe
FIEUX
2.81
2.90
2.19
2.04
1.48
0.89
0.00
0.00
0.00
0.00
Fidelity Japan
FJPNX
0.87
0.78
0.74
0.76
0.65
0.37
0.00
0.00
0.00
0.00
Fidelity Total Bond
FTBFX
2.52
2.14
1.71
1.10
0.70
0.08
0.00
0.00
0.00
0.00
Fidelity Emerging Asia
FSEAX
0.24
0.24
0.24
0.23
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Value
FDVLX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Government Income
FGOVX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Mid-Cap Stock
FMCSX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity OTC
FOCPX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Investment Grade Bond
FBNDX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Growth & Income
FGRIX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Stock Selector Sm Cp
FDSCX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Intermediate Bond
FTHRX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Small Cap Independence
FDSCX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Southeast Asia
FSEAX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity
FFIDX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Inv Grade Bd Inc
FBNDX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fidelity Series Inflation-Prtct Bd Idx
FSIPX
0.00
0.02
0.09
0.23
0.43
0.68
0.75
0.39
0.35
0.56
Fidelity Series Emerging Markets Debt
FEDCX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.10
0.30
0.61
Fidelity Series High Income
FSHNX
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7.12
6.97
7.37
100
21
100
22
100
26
100
26
100
25
100
25
100
21
100
21
100
21
100
21
–0.20
–0.20
–0.19
–0.19
–0.19
–0.19
–0.19
–0.17
–0.18
–0.18
Total
Used
Weighted Average Fee
June
2009
Sept
2009
March
2011
Source: Morningstar Direct
* Three of the tickers are listed twice due to name changes associated with the sub-fund.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
12
To determine the effective asset allocation of the Fidelity Freedom 2030 fund, each of the individual
sub-funds was analyzed to determine their respective individual effective asset allocations and,
eventually, the “pure alphas” for each sub-fund. As part “a” of Formula 2 demonstrates, the active
return from asset allocation is calculated by comparing the weighted average performance of the
effective asset class allocations of the Fidelity Freedom 2030 fund relative to the performance of the
beta-adjusted benchmark.
Figure 3 and Table 4 show the evolving estimated effective asset allocation of the Fidelity Freedom
2030 fund based on holdings-based style analysis of each of the sub-funds, respectively. The asset
classes used to specify or represent the effective asset allocation are somewhat granular. We have
used the set of asset classes that make up the Morningstar Moderate Allocation Index family, plus
the BarCap US Corporate High Yield for high yield bonds and the FTSE NAREIT All Equity REITs for
U.S. REITs. The Morningstar Moderate Allocation Index family does not include a separate allocation
to these two asset classes; yet, the Fidelity Freedom funds have an explicit allocation to high yield
bonds and REITs. One could certainly use a less granular set, although we find that it is helpful for a
more detailed asset class attribution analysis to map the holdings of the fund into the asset classes
contained explicitly in the target date benchmark that one is using (plus any additional asset classes
in the fund that are not represented in the benchmark). Although it is not a necessary step for
completing the asset allocation, sub-fund alpha, and glide path-fee decomposition in Formula 2, we
demonstrate this extra level of asset class performance attribution in the Appendix.
Asset Class Exposures (%)
Figure 3: Underlying Effective Asset Allocation – Fidelity Freedom 2030 (Dec. 2006 – Sept. 2011)
100%
Cash
TIPS
Short-term Bonds
Intermediate-term Bonds
Long-term Bonds
Non-US Bonds
High Yield Bonds
Commodities
US REITs
Emerging Markets Equity
Non-US Developed Equity
US Small Cap Value Equity
US Small Cap Blend Equity
US Small Cap Growth Equity
US Mid Cap Value Equity
US Mid Cap Blend Equity
US Mid Cap Growth Equity
US Large Cap Value Equity
US Large Cap Blend Equity
US Large Cap Growth Equity
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Source: Morningstar Direct
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
13
Table 4: Effective Asset Allocation—Fidelity Freedom 2030 (December 2006–September 2011)
Asset Allocation
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
U.S. Large-Cap Growth Equity
16.17
16.27
16.88
17.30
17.07
16.03
15.62
15.32
14.64
13.51
U.S. Large-Cap Blend Equity
15.54
14.90
13.62
12.97
13.06
13.04
13.22
13.88
14.11
12.92
U.S. Large-Cap Value Equity
10.95
10.83
11.03
11.54
12.56
12.40
12.55
12.22
14.00
15.84
U.S. Mid-Cap Growth Equity
7.35
7.39
6.72
6.27
5.76
5.03
5.21
5.56
4.73
4.05
U.S. Mid-Cap Blend Equity
3.84
4.1
4.64
4.06
4.07
4.50
4.52
4.84
5.35
3.91
U.S. Mid-Cap Value Equity
2.73
2.72
2.49
2.88
2.44
2.46
2.52
2.73
3.76
3.12
U.S. Small-Cap Growth Equity
2.31
2.49
2.79
2.91
2.47
2.39
2.39
2.06
2.59
1.93
U.S. Small-Cap Blend Equity
1.30
1.33
1.61
1.98
1.94
1.48
1.55
1.63
1.97
1.22
U.S. Small-Cap Value Equity
0.92
0.81
0.93
1.20
1.73
2.22
1.57
0.78
2.29
1.24
Non-US Developed Equity
19.57
19.53
19.39
19.91
18.79
17.41
17.18
18.19
16.20
16.63
Emerging Markets Equity
1.49
1.19
1.37
1.27
1.47
1.99
2.04
2.91
1.68
0.99
U.S. REITs
0.50
0.53
0.55
0.43
0.71
0.47
0.46
0.00
2.01
0.13
Commodities
0.43
0.57
0.51
0.32
0.31
0.38
1.36
1.91
1.34
0.72
High-Yield Bonds
5.79
5.84
5.82
5.95
6.18
6.55
7.09
6.63
5.44
5.85
Non-U.S. Bonds
0.47
0.45
0.45
0.23
0.21
0.06
0.07
0.04
0.00
0.82
Long-term Bonds
3.90
3.91
3.82
3.54
3.68
3.97
3.45
3.33
2.95
4.63
Intermediate-term Bonds
2.33
2.38
2.59
2.96
3.19
3.70
4.05
3.44
3.32
5.10
Shot-term Bonds
0.48
0.53
0.60
0.58
0.48
0.32
0.44
0.31
0.00
1.09
TIPS
0.45
0.61
0.62
0.5
0.51
0.55
0.72
0.45
0.00
1.06
Cash
3.47
3.52
3.57
3.12
3.37
5.05
3.99
3.75
3.61
5.26
Total
100
100
100
100
100
100
100
100
100
100
June
2009
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2011
10.82
Asset Allocation
U.S. Large-Cap Growth Equity
13.13
12.85
12.64
11.96
11.41
11.06
10.84
11.26
10.95
U.S. Large-Cap Blend Equity
13.13
13.19
14.38
13.24
11.98
10.40
9.54
9.17
9.26
9.61
U.S. Large-Cap Value Equity
15.41
16.51
14.79
15.00
13.16
12.17
11.85
11.01
10.86
10.77
U.S. Mid-Cap Growth Equity
4.16
4.30
4.80
4.21
4.18
3.67
3.79
3.04
3.06
3.96
U.S. Mid-Cap Blend Equity
4.40
4.37
4.34
3.56
3.59
3.30
3.33
2.48
2.87
3.20
U.S. Mid-Cap Value Equity
4.37
4.13
4.28
4.55
4.14
2.68
2.55
2.12
2.18
2.60
U.S. Small-Cap Growth Equity
2.39
1.85
2.01
1.80
1.81
1.71
1.98
1.30
1.71
2.44
U.S. Small-Cap Blend Equity
1.88
1.35
1.27
1.13
0.99
0.91
1.25
0.65
1.60
2.26
U.S. Small-Cap Value Equity
2.29
1.58
1.34
1.30
1.46
1.26
1.33
0.88
1.32
1.69
Non-US Developed Equity
17.38
17.80
17.32
16.99
17.26
18.18
19.14
18.49
18.49
18.68
Emerging Markets Equity
2.97
1.88
2.31
2.17
2.62
3.45
4.08
4.65
4.60
5.35
U.S. REITs
1.68
1.08
0.96
0.53
0.51
0.61
0.60
0.39
0.02
1.00
Commodities
0.37
0.31
1.45
2.76
4.51
6.40
8.12
7.83
10.01
7.65
High-Yield Bonds
6.15
5.86
6.48
6.18
5.45
5.86
5.58
5.79
6.21
6.12
Non-U.S. Bonds
0.16
1.34
0.90
0.93
1.03
1.28
0.51
1.51
0.13
0.81
Long-term Bonds
3.08
3.84
2.73
3.23
3.82
4.22
3.78
5.42
5.82
4.90
Intermediate-term Bonds
3.54
4.44
4.52
5.40
6.34
6.39
6.12
6.44
5.09
4.97
Shot-term Bonds
0.00
0.66
0.88
1.28
1.43
1.69
1.18
1.58
1.70
0.87
TIPS
0.00
0.52
0.65
0.94
1.05
1.42
1.36
1.87
0.61
0.12
Cash
3.50
2.11
1.93
2.86
3.29
3.33
3.06
4.13
3.52
2.17
Total
100
100
100
100
100
100
100
100
100
100
Source: Morningstar Direct
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
14
As demonstrated below in Table 5, the effective asset allocation weights from Table 4 are combined
with the quarterly returns associated with the appropriate asset class index proxies to determine
the period-by-period return of the fund’s effective asset allocation. Over this five-year period, on
average the effective asset allocations of the Fidelity Freedom 2030 fund added approximately 5
basis point of excess return per quarter. Figure 4 graphs the quarterly active returns (from the
bottom of Table 5) resulting from asset allocation. The solid black line represents the average active
return of 5 basis points per quarter.
Table 5: Asset Class Returns and Asset Allocation Return – Fidelity Freedom 2030
(Dec. 2006 – Sept. 2011)
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
June
2009
U.S. Large-Cap Growth Equity
5.58
1.58
6.38
5.30
–1.28
–11.50
4.34
–15.23
–25.75
0.23
15.77
U.S. Large-Cap Blend Equity
6.24
–0.89
6.95
3.35
–0.82
–7.12
–4.51
–3.88
–19.62
–13.98
16.62
U.S. Large-Cap Value Equity
8.02
0.82
5.42
0.56
–6.84
–9.96
–7.43
–6.09
–18.37
–15.78
11.85
U.S. Mid-Cap Growth Equity
6.89
5.22
8.57
4.87
–0.08
–12.88
9.07
–20.62
–28.78
–4.04
18.07
U.S. Mid-Cap Blend Equity
8.28
4.35
6.54
–2.75
–5.71
–7.69
2.67
–12.60
–26.04
–9.82
19.88
U.S. Mid-Cap Value Equity
8.90
4.19
3.87
–6.25
–6.86
–8.68
–4.75
–3.19
–23.93
–17.14
23.88
U.S. Small-Cap Growth Equity
7.19
3.85
6.61
2.46
–2.08
–14.40
4.03
–8.37
–26.37
–8.73
23.38
U.S. Small-Cap Blend Equity
8.67
2.39
5.87
–5.95
–7.24
–6.92
1.39
–5.89
–28.15
–11.94
24.14
U.S. Small-Cap Value Equity
8.96
1.31
2.55
–6.81
–5.12
–5.28
–8.13
5.68
–25.70
–19.07
25.49
Non-US Developed Equity
10.09
4.28
7.65
2.70
–1.38
–8.49
–1.79
–20.70
–21.17
–12.08
23.65
Emerging Markets Equity
20.67
1.63
14.89
13.36
6.99
–11.89
–0.73
–25.75
–26.10
–0.13
38.73
U.S. REITs
9.47
3.46
–9.04
2.59
–12.67
1.40
–4.93
5.55
–38.80
–31.87
28.85
Commodities
2.46
3.37
3.10
12.63
9.77
9.29
21.26
–27.77
–30.80
–4.03
13.59
High-Yield Bonds
4.20
2.64
0.22
0.33
–1.30
–3.02
1.76
–8.89
–17.88
5.98
23.07
Non-U.S. Bonds
1.97
1.09
–1.87
8.15
3.93
10.73
–4.64
–4.41
8.47
–5.46
5.61
Long-term Bonds
0.99
1.27
–1.68
3.70
4.12
2.30
–1.90
–2.68
12.03
–3.48
1.63
Intermediate-term Bonds
1.46
1.60
–0.73
3.00
3.34
2.76
–1.11
1.30
5.00
1.82
0.43
Shot-term Bonds
0.98
1.52
0.48
2.62
2.52
2.99
–0.94
–0.15
3.04
0.48
1.51
TIPS
–1.27
2.48
–0.69
4.47
5.11
5.21
–0.21
–3.29
–3.19
4.97
0.00
Cash
1.23
1.23
1.24
1.10
0.87
0.70
0.28
0.39
0.13
0.03
0.03
Return of Effective Allocation
Beta Adjusted Benchmark Return
6.89
7.28
2.24
2.37
5.52
5.78
2.39
2.46
–1.83
–1.52
–7.37
–7.4
–0.43
–0.53
–11.37
–12.25
–20.10
–19.41
–7.69
–9.20
17.63
17.53
–0.40
–0.13
–0.27
–0.07
–0.31
0.04
0.10
0.89
–0.69
1.51
0.11
Out/Underperformance
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
15
Table 5 Continued: Asset Class Returns and Asset Allocation Return – Fidelity Freedom 2030
(Dec. 2006 – Sept. 2011)
Sub-Fund Name
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2010
June
2011
Sept
2011
Average
0.80
U.S. Large-Cap Growth Equity
13.46
9.66
2.91
–13.45
13.08
12.11
4.07
0.42
–11.73
U.S. Large-Cap Blend Equity
14.50
5.81
5.47
–11.16
9.14
10.43
4.85
0.55
–12.53
0.47
U.S. Large-Cap Value Equity
14.73%
3.05
5.66
–11.66
12.14
9.56
7.62
–0.41
–15.49
–0.63
U.S. Mid-Cap Growth Equity
16.96
7.19
7.78
–8.29
13.02
14.27
9.89
1.96
–19.69
1.47
U.S. Mid-Cap Blend Equity
20.78
6.41
8.16
–9.83
13.91
13.84
9.10
–0.48
–18.13
1.04
U.S. Mid-Cap Value Equity
25.80
5.36
9.73
–10.69
10.89
10.99
7.38
–0.93
–19.00
0.48
U.S. Small-Cap Growth Equity
13.85
3.72
8.78
–9.55
14.11
16.91
9.44
0.26
–20.56
1.23
U.S. Small-Cap Blend Equity
22.40
4.53
8.76
–9.17
11.47
16.04
9.72
–1.45
–23.60
0.75
U.S. Small-Cap Value Equity
30.32
5.99
11.23
–10.50
11.11
13.88
6.70
–1.70
–20.07
1.04
Non-US Developed Equity
20.20
2.03
1.48
–12.84
16.78
8.45
4.53
1.20
–19.24
0.27
Emerging Markets Equity
19.55
9.71
2.84
–9.39
17.75
5.47
2.82
–0.23
–20.57
2.98
U.S. REITs
33.28
9.39
10.02
–4.06
12.83
7.43
7.50
2.90
–15.07
0.91
1.35
9.43
–4.38
–2.89
12.14
18.72
9.92
–7.62
–8.53
2.05
14.22
6.19
4.62
–0.11
6.71
3.22
3.88
1.05
–6.06
2.04
Non-U.S. Bonds
7.17
–2.23
–2.29
–1.54
10.62
–1.71
1.18
3.36
0.80
1.95
Long-term Bonds
6.83
–1.50
1.75
7.38
5.55
–4.45
–0.07
3.13
11.87
2.34
Intermediate-term Bonds
2.68
0.44
1.64
3.44
1.62
–0.56
0.48
2.58
2.71
1.69
Shot-term Bonds
1.73
0.40
1.03
1.42
1.25
–0.28
0.21
1.20
0.47
1.12
TIPS
3.68
2.12
0.33
3.95
2.71
–0.70
1.98
3.62
4.42
1.78
Cash
0.04
0.01
0.01
0.03
0.04
0.05
0.03
0.01
0.00
0.37
Return of Effective Allocation
15.49
4.75
4.06
–8.04
11.04
8.80
4.75
–0.09
–12.51
0.71
Beta Adjusted Benchmark Return
15.49
4.08
4.01
–8.69
11.74
8.78
5.09
0.13
–12.68
0.65
0.00
0.67
0.05
0.65
–0.71
0.02
–0.34
–0.22
0.17
0.05
Commodities
High-Yield Bonds
Out/Underperformance
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
16
Figure 4: Active Return from Asset Allocation (December 2006 – September 2011)
2.0%
1.5%
Quarterly Active Return
1.0%
0.5%
0.0%
-0.5%
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
-1.0%
Source: Morningstar Direct
Although Fidelity Freedom funds are not thought to tactically alter their strategic asset allocations,
the framework that we have proposed would work well at quantifying the value that is either added
or subtracted from tactical management. The effective asset allocations of the Fidelity Freedom
2030 fund are relatively stable over time (see Figure 3); however, we would expect a much greater
change in the effective asset allocations for target date funds from fund families with a greater
preference toward tactical asset allocation. 3
When calculating the active return resulting from asset allocation, it is cleanest to use the returns of
the sub-indexes from the target date benchmark. If different indexes are used to represent the
individual asset classes, the out/underperformance will at least partially be caused by the
differences in the asset class indexes. This is especially true for commodity indexes, where
substantial performance differences among popular commodity indexes are common.
3
We should note that the process of “beta-adjusting” the benchmark based on 12-month rolling betas may potentially pick up
changes in risk resulting from a tactical asset allocation program; thus, the “beta-adjusted benchmark” would partially account for
tactical asset allocation. This has the undesirable effect of comparing the performance of the fund to a benchmark that already
partially accounts for tactical asset allocation.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
17
Sub-Fund Alphas
Turning to the weighted-average alpha of the sub-funds, we move to part “b” of Formula 2. Here the
goal is to determine the part of active return attributed to sub-fund alphas. More specifically, we
estimate the weighted-average, period-by-period alpha for each of the sub-funds for the given target
date fund. In our working example, we continue to show the details for the sub-funds that make up
the Fidelity Freedom 2030 fund. Earlier we used the term “pure alpha” to emphasize that these are
not alphas relative to a single-factor benchmark, such as the S&P 500, but alphas relative to a
custom, evolving multi-asset class benchmark. When it comes to estimating a custom, multi-asset
class benchmark for estimating realized alphas, we prefer to use returns-based style analysis
because it gives credit to the sub-funds for some market-timing skill, which period-by-period
holdings-based style analysis significantly mutes. 4 Thus, a returns-based style analysis is completed
for each sub-fund using a rolling 36-month window to create the evolving custom multi-asset class
benchmark. The period-by-period alpha of each fund is then estimated relative to its own custom
benchmark.
Table 6 shows the estimated quarterly alphas over the past five years for the sub-funds of the
Fidelity Freedom 2030 fund. Of note, across the entire Fidelity Freedom Funds family, since 2007,
there have been 40 underlying funds used; each of which must be analyzed individually. Coupling
the quarter-by-quarter alphas in Table 6 with the weight of each sub-fund in the Fidelity Freedom
2030 fund shown earlier in Table 3, the final row of Table 6 contains the quarter-by-quarter
weighted average alpha.
The final column of Table 6 contains the average quarterly alpha for each of the sub-funds as well as
the average for the weighted average quarterly alphas, which is negative 25 basis points. Thus, in
contrast to the effective asset allocations decisions that added approximately 6 basis points, the
sub-funds of Fidelity Freedom 2030 hurt performance by approximately 25 basis points per quarter.
This analysis helps identify the quality of the underlying sub-funds. For example, Fidelity Growth &
Income (FGRIX) had the worst average quarterly alpha of the sub-funds at negative 2.23%. In
contrast, Fidelity OTC (FOCPX) had the highest average quarterly alpha at 1.09%.
4
Because a period-by-period holdings-based style benchmark by definition accounts for the evolving holdings of the manager in
question, at least quarterly, from a tactical asset allocation perspective the manager only gets credit for changes intra-quarter
typically relative to the average asset allocation derived from the beginning of the period holdings and end of the period holdings.
For example, imagine a tactical manager that made the great tactical move of overweighting long-term treasuries for the 3rd and
4th quarters of 2008 during the worst of the financial crisis.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
18
Table 6: Quarterly Alphas of Sub-Funds—Fidelity Freedom 2030 Fund
(Dec. 2006–Sept. 2011)
Sub-Fund Name
Ticker
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
June
2009
Fidelity Series All-Sector Equity
FSAEX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series Large Cap Value
FLVSX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Disciplined Equity
FDEQX
–0.41
1.14
0.16
–0.08
4.17
–4.07
1.93
–0.08
–0.47
–2.12
–4.37
Fidelity Series Commodity Strategy
FCSSX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Growth Company
FDGRX
1.99
–3.34
2.34
3.81
1.70
–0.08
3.01
–0.93
3.95
–0.12
–2.39
Fidelity Series 100 Index
FOHIX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series International Growth
FIGSX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series International Value
FINVX
—
—
—
—
—
—
—
—
—
—
—
Fidelity High Income
SPHIX
0.04
0.11
–0.69
–0.10
0.29
0.93
1.11
0.87
–2.45
1.63
–0.58
Fidelity Capital & Income
FAGIX
0.49
0.31
1.11
–1.15
0.41
–0.73
2.22
0.36
–5.93
1.84
6.53
Fidelity Overseas
FOSFX
–0.67
–0.15
0.66
3.04
–0.11
–2.97
–2.35
–0.47
0.84
–5.54
–1.74
Fidelity Diversified International
FDIVX
–0.52
–0.83
–0.16
1.26
0.35
–1.84
0.74
–0.54
0.06
–0.21
–2.54
Fidelity Blue Chip Growth
FBGRX
–2.14
–1.66
1.16
0.28
–0.17
–1.05
–0.64
2.70
–2.58
2.10
–0.56
Fidelity Series Emerging Markets
FEMSX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series Small-Cap Opps
FSOPX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series International Small-Cap
FSTSX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Small-Cap Value
FCPVX
—
—
—
—
—
–4.72
–6.17
11.32
3.85
3.47
–1.12
Fidelity Small-Cap Growth
FCPGX
—
—
—
—
—
–5.38
0.41
–2.06
–0.40
0.46
3.20
Fidelity Series Investment Grade Bond
FSIGX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Strategic Real Return
FSRRX
—
—
—
—
—
—
—
—
–4.84
0.82
–0.34
Fidelity Equity-Income
FEQIX
–0.12
0.33
1.15
–1.82
–2.07
–1.43
–0.97
–2.92
–3.36
0.18
2.81
Fidelity Europe
FIEUX
0.33
–1.44
–0.96
–1.00
4.34
–2.08
1.85
–5.06
3.82
–1.96
0.44
Fidelity Japan
FJPNX
–6.18
0.12
–6.55
–4.28
–8.16
–4.00
2.18
2.46
2.64
–0.06
5.12
Fidelity Total Bond
FTBFX
–0.15
–0.21
–0.23
–1.05
–0.94
–0.52
0.23
–0.89
–2.32
0.30
1.71
Fidelity Emerging Asia
FSEAX
0.67
2.89
10.49
12.13
–6.45
–7.38
–6.96
2.69
6.63
–3.62
–10.43
Fidelity Value
FDVLX
–0.97
1.70
1.25
–0.25
–2.33
–1.29
–1.89
–1.91
–8.72
–1.57
3.39
Fidelity Government Income
FGOVX
0.11
–0.23
–0.12
0.19
0.14
0.75
–0.65
2.50
2.96
–0.41
–1.71
Fidelity Mid-Cap Stock
FMCSX
–2.79
1.90
0.51
–2.13
–2.64
–2.79
5.44
–6.97
3.25
0.90
1.58
Fidelity OTC
FOCPX
1.54
–1.15
2.91
6.69
3.57
–5.84
2.42
–3.18
2.49
5.49
3.01
Fidelity Investment Grade Bond
FBNDX
0.08
–0.23
–0.29
–1.75
–1.13
–1.58
0.22
–0.38
–3.15
0.04
1.24
Fidelity Growth & Income
FGRIX
0.25
–1.19
2.26
–3.96
–3.66
–2.05
–7.63
–8.03
–7.85
–0.05
–5.91
Fidelity Stock Selector Small-Cap
FDSCX
2.93
2.01
3.07
–2.96
–1.00
–6.01
–1.20
–2.51
–2.29
–6.47
1.21
Fidelity Intermediate Bond
FTHRX
–0.06
0.00
–0.41
–1.36
–1.20
–1.20
–0.40
–1.57
–1.89
–0.32
1.70
Fidelity Small-Cap Independence
FDSCX
2.93
2.01
3.07
–2.96
–1.00
–6.01
–1.20
–2.51
–2.29
–6.47
1.21
Fidelity Southeast Asia
FSEAX
0.67
2.89
10.49
12.13
–6.45
–7.38
–6.96
2.69
6.63
–3.62
–10.4
Fidelity
FFIDX
–1.20
0.7
0.93
1.22
3.59
–3.06
0.88
–0.32
1.54
–2.88
–1.22
Fidelity Inv Grade Bd Inc
FBNDX
0.08
–0.23
–0.29
–1.75
–1.13
–1.58
0.22
–0.38
–3.15
0.04
1.24
Fidelity Series Inflation-Prtct Bd Idx
FSIPX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series Emerging Markets Debt
FEDCX
—
—
—
—
—
—
—
—
—
—
—
Fidelity Series High Income
FSHNX
—
—
—
—
—
—
—
—
—
—
—
–0.32
–0.24
0.81
0.05
0.15
–1.69
0.65
–0.93
–0.92
–0.43
–0.31
Weighted Average Fund Alpha
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
19
Table 6 Continued: Quarterly Alphas of Sub-Funds—Fidelity Freedom 2030 Fund
(Dec. 2006–Sept. 2011)
Sub-Fund Name
Ticker
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2011
Average
Fidelity Series All-Sector Equity
FSAEX
—
—
—
—
—
—
—
—
—
—
Fidelity Series Large Cap Value
FLVSX
—
—
—
—
—
—
—
—
—
—
Fidelity Disciplined Equity
FDEQX
0.86
–0.54
–0.20
–1.69
–4.59
–2.95
–0.20
0.01
–4.55
–0.90
Fidelity Series Commodity Strategy
FCSSX
—
—
—
—
—
—
—
—
—
—
Fidelity Growth Company
FDGRX
1.72
–1.14
1.35
–0.17
1.67
–1.28
1.09
0.56
1.11
0.74
Fidelity Series 100 Index
FOHIX
—
—
—
–0.34
–0.52
0.21
–0.58
–0.54
1.60
–0.03
Fidelity Series International Growth
FIGSX
—
—
—
—
—
—
—
—
—
—
Fidelity Series International Value
FINVX
—
—
—
—
—
—
—
—
—
—
Fidelity High Income
SPHIX
1.10
0.46
0.16
–0.73
0.36
0.13
0.46
–0.58
–1.14
0.07
Fidelity Capital & Income
FAGIX
6.37
1.04
0.31
0.19
–0.55
0.37
0.52
–0.67
–2.89
0.51
Fidelity Overseas
FOSFX
–1.86
–3.25
–3.22
–4.02
–0.31
0.71
–1.79
0.83
–5.67
–1.40
Fidelity Diversified International
FDIVX
–1.97
–0.23
–1.49
–2.42
0.37
–0.49
–1.66
–0.54
–1.81
–0.72
Fidelity Blue Chip Growth
FBGRX
3.43
0.85
0.14
–1.50
1.08
1.40
0.21
0.51
0.39
0.20
Fidelity Series Emerging Markets
FEMSX
—
—
—
—
—
—
—
—
—
—
0.92
Fidelity Series Small-Cap Opps
FSOPX
—
—
—
1.33
–0.18
4.14
0.37
–0.01
–0.17
Fidelity Series International Small-Cap
FSTSX
—
—
—
—
—
—
—
—
—
—
Fidelity Small-Cap Value
FCPVX
–2.99
–1.95
–0.84
1.89
–1.17
–0.96
–1.26
–2.07
–0.90
–0.24
Fidelity Small-Cap Growth
FCPGX
0.88
–0.80
–0.26
–0.21
–1.81
1.44
–1.56
1.07
–0.46
–0.36
Fidelity Series Investment Grade Bond
FSIGX
—
—
—
—
—
—
—
—
—
—
Fidelity Strategic Real Return
FSRRX
1.29
–0.40
0.27
–0.40
–0.29
–0.26
–1.36
0.01
–0.13
–0.47
Fidelity Equity-Income
FEQIX
0.40
–1.24
–0.74
–1.56
–1.31
0.85
–0.25
–0.98
–1.43
–0.72
Fidelity Europe
FIEUX
0.03
0.50
–2.40
–4.32
4.42
0.03
–0.78
0.43
–6.42
–0.51
Fidelity Japan
FJPNX
–12.43
–4.36
5.93
–2.24
–6.02
4.50
–11.90
–1.13
6.94
–1.87
Fidelity Total Bond
FTBFX
1.35
–0.13
0.65
1.01
0.19
–0.56
–0.20
0.62
1.89
0.04
Fidelity Emerging Asia
FSEAX
–3.01
–1.86
–1.47
2.31
2.84
2.15
–0.62
–0.35
–8.09
–0.37
Fidelity Value
FDVLX
3.23
–2.24
0.32
–3.16
0.44
1.11
–0.05
–1.62
–0.81
–0.77
Fidelity Government Income
FGOVX
–0.86
–0.59
–0.26
0.00
0.14
–0.87
–0.41
0.04
0.87
0.08
Fidelity Mid-Cap Stock
FMCSX
7.22
–1.80
3.80
–4.74
–0.96
1.43
–1.74
–0.70
2.76
0.08
Fidelity OTC
FOCPX
1.36
0.72
–0.11
–2.38
0.51
–0.84
2.28
–1.32
3.70
1.09
Fidelity Investment Grade Bond
FBNDX
1.76
0.08
0.86
1.62
0.08
–0.68
–0.22
0.77
2.23
–0.02
Fidelity Growth & Income
FGRIX
–3.27
–1.05
–0.81
–2.45
–1.95
1.12
–2.55
0.29
3.92
–2.23
Fidelity Stock Selector Small-Cap
FDSCX
2.51
–4.45
1.13
0.46
0.07
4.21
–0.31
–0.37
0.54
–0.47
Fidelity Intermediate Bond
FTHRX
1.61
–0.52
0.73
1.67
0.51
–1.48
–0.34
0.58
1.93
–0.10
Fidelity Small-Cap Independence
FDSCX
2.51
–4.45
1.13
0.46
0.07
4.21
–0.31
–0.37
0.54
–0.47
Fidelity Southeast Asia
FSEAX
–3.01
–1.86
–1.47
2.31
2.84
2.15
–0.62
–0.35
–8.09
–0.37
Fidelity
FFIDX
–0.16
–2.62
–1.01
–1.23
–1.70
0.91
–0.31
0.55
1.14
–0.21
Fidelity Inv Grade Bd Inc
FBNDX
1.76
0.08
0.86
1.62
0.08
–0.68
–0.22
0.77
2.23
–0.02
Fidelity Series Inflation-Prtct Bd Idx
FSIPX
—
—
—
—
—
—
—
—
—
—
Fidelity Series Emerging Markets Debt
FEDCX
—
—
—
—
—
—
—
—
—
—
Fidelity Series High Income
FSHNX
—
—
—
—
—
—
—
—
—
—
0.41
–0.45
–0.18
–0.69
–0.33
–0.19
–0.11
0.02
–0.28
–0.25
Weighted Average Fund Alpha
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
20
Figure 5 displays the quarterly active returns attributed to the weighted average alpha of the
sub-funds each quarter during the past five years. The solid black line represents the average
quarterly alpha.
Figure 5: Quarterly Alphas of Sub-Funds—Fidelity Freedom 2030 Fund (Dec. 2006 – Sept. 2011)
1.0%
Quarterly Alphas
0.5%
0.0%
-0.5%
-1.0%
-1.5%
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
-2.0%
Source: Morningstar Direct
Glide Path Fee
The sub-fund alpha analysis was completed “net-of-fees” so that we could determine whether or
not the individual sub-funds were adding or detracting alpha after accounting for their individual
fees. Thus, we have already accounted for the underlying sub-fund fees. The weighted average
quarterly sub-fund fees during this time period were 19 basis points.
For the purchaser of a target date fund the most transparent number is the “all-in” fund fee. Where
exactly that “all-in” fee goes and whether or not the sub-funds charge/receive their individual fund
fee internally at Fidelity is less transparent. To avoid potentially double counting, in part “c” of
Equation 2 we start with the “all-in” Fidelity Freedom 2030 fee (75 basis point per year, or 18.75 per
quarter), and then subtract from the “all-in” fee the weighted average fee of the underlying subfunds that we already accounted for. One might think of this remaining fund fee as the “glide path
fee.” For some fund families this “glide path fee” is extremely low or potentially negative as they
view the target date fund family as a tool for driving assets to the sub-funds rather than an
additional revenue source.
In the case of Fidelity Freedom 2030, the weighted average quarterly fee of the sub-funds comes
extremely close to the 18.75 basis point “all-in” fund fee per quarter, indicating that there is virtually
no additional “glide path” fee and the “all-in” fund fee charged by the Fidelity Freedom 2030 fund is
simply the weighted average fee of the underlying sub-funds. Please recall that the weighted
average sub-fund fees were reported at the bottom of Table 3, and they are displayed again shortly
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
21
in our Fidelity Freedom 2030 attribution summary table (Table 7). In fact, in this case in which the
“all-in” fee for Fidelity Freedom 2030 is simply a pass-through of the sub-fund fees our small nonzero numbers in any given quarter are most likely errors caused by only having quarterly sub-fund
allocations rather than daily.
Other
The final part of Formula 2, part “d,” represents “other.” It is a plug that allows our decomposition in
each quarter to hold perfectly. It should be thought of as an error term resulting from estimation
errors associated with parts “a” through “c” of Formula 2. Jumping ahead slightly to our active
return attribution summary presented in Table 7 for the Fidelity Freedom 2030 fund, the average
value for “other” is nearly zero indicating that over time the errors are cancelling each other out. At
negative 1 basis point, this indicates that on average the total of the first three parts of Formula 2
are collectively slightly too optimistic. While not always true, in general and intuitively, the absolute
values of the error terms are larger during quarters in which the absolute fund returns were large.
Putting the Pieces Together
Table 7 summarizes the active return attribution analysis for the Fidelity Freedom 2030 fund.
Working with the return attribution framework developed in Formulas 1 and 2, Table 7 contains the
following information:
× Active Return (Formula 1) – Starting with the return of the Fidelity Freedom 2030 fund the
return of the Morningstar Moderate 2030 (beta-adjusted) benchmark is subtracted to arrive at
the active return.
× Asset Allocation (Formula 2b) – Starting with the return of the effective asset allocation of the
Fidelity Freedom 2030 fund, the return of the Morningstar Moderate 2030 (beta-adjusted)
benchmark is subtracted to arrive at the active return attributed to asset allocation. This comes
from the bottom of Table 5.
× Weighted Average Sub-Fund Alphas (Formula 2b) – This can be found at the bottom of Table 6.
× Weighted Average Sub-Fund Fees (Formula 3c) – This can be found at the bottom of Table 3.
× Other (Formula 2d)
The final column of Table 7 contains the averages for the various quarterly series, respectively.
Annualizing these quarterly active returns leads back to the negative 82 basis point annual
arithmetic return differential identified earlier in Table 2.
Returning briefly to our decision to display sub-fund alphas net of fees, some practitioners may
prefer to display the weighted sub-fund alpha gross of fees (approximately negative 7 basis points
per quarter for Fidelity Freedom 2030) and then modify what we are calling a “glide path fee” to
represent an “all-in fee.”
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
22
Table 7: Active Return Distribution – Fidelity Freedom 2030 Fund (Dec. 2006 – Sept. 2011)
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
June
2009
17.41
Fidelity Freedom 2030
6.58
2.06
6.32
2.43
–1.69
–9.08
0.26
–12.36
–21.05
–8.09
Morningstar Moderate 2030 (Beta-Adjusted)
7.28
2.37
5.78
2.46
–1.52
–7.41
–0.53
–12.25
–19.41
–9.20
17.53
–0.70
–0.31
0.54
–0.03
–0.18
–1.67
0.79
–0.11
–1.64
1.10
–0.12
Active Return
FF 2030 Effective Asset Allocation Return
6.89
2.24
5.52
2.39
–1.83
–7.37
–0.43
–11.37
–20.10
–7.69
17.63
Morningstar Moderate 2030 (Beta-Adjusted)
7.28
2.37
5.78
2.46
–1.52
–7.41
–0.53
–12.25
–19.41
–9.20
17.53
(a) Asset Allocation
–0.40
–0.13
–0.27
–0.07
–0.31
0.04
0.10
0.89
–0.69
1.51
0.11
(b) Weighted Average Sub-Fund Alpha
–0.32
–0.24
0.81
0.05
0.15
–1.69
0.65
–0.93
–0.92
–0.43
–0.31
Fidelity Freedom 2030 Overall Fund Fee
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
Weighted Average Sub-Fund Fees
0.1901
0.1945
0.1891
0.1792
0.1793
0.1879
0.1894
0.1843
0.1658
0.1892
0.1954
–0.0026
–0.0070
–0.0016
0.0083
0.0082
–0.0004
–0.0019
0.0032
0.0217
–0.0017
–0.0079
0.02
0.06
0.00
–0.02
–0.02
–0.01
0.04
–0.06
–0.05
0.02
0.09
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2011
Average
0.45
(c) Glide Path Fee
(d) Other
Fidelity Freedom 2030
15.92
4.38
3.87
–8.73
10.71
8.65
4.58
–0.29
–12.87
Morningstar Moderate 2030 (Beta-Adjusted)
15.49
4.08
4.01
–8.69
11.74
8.78
5.09
0.13
–12.68
0.65
0.43
0.30
–0.13
–0.04
–1.03
–0.13
–0.51
–0.42
–0.18
–0.20
Active Return
FF 2030 Effective Asset Allocation Return
15.49
4.75
4.06
–8.04
11.04
8.80
4.75
–0.09
–12.51
0.71
Morningstar Moderate 2030 (Beta-Adjusted)
15.49
4.08
4.01
–8.69
11.74
8.78
5.09
0.13
–12.68
0.65
(a) Asset Allocation
0.00
0.67
0.05
0.65
–0.71
0.02
–0.34
–0.22
0.17
0.05
(b) Weighted Average Sub-Fund Alpha
0.41
–0.45
–0.18
–0.69
–0.33
–0.19
–0.11
0.02
–0.28
–0.25
Fidelity Freedom 2030 Overall Fund Fee
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.1875
0.19
Weighted Average Sub-Fund Fees
0.1967
0.1915
0.1868
0.1859
0.1884
0.1881
0.1659
0.1798
0.1778
0.19
–0.0092
–0.0040
0.0007
0.0016
–0.0009
–0.0006
0.0216
0.0077
0.0097
0.00
0.03
0.08
–0.01
–0.01
0.01
0.03
–0.09
–0.23
–0.08
–0.01
(c) Glide Path Fee
(d) Other
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
23
Based on the information in Table 7, Figure 6 graphs the cumulative impact of the four sources of
active return – asset allocation, sub-fund alpha, glide path fees, and other – during the five-year
analysis period. During the first two years or so, asset allocation (blue) contributed negatively, while
in the most recent three years it helped performance. The negative “net of fee” alphas of the subfunds are the primary source of Fidelity Freedom 2030 fund’s negative performance relative to the
Morningstar Moderate 2030 (beta-adjusted) benchmark. The impact of a “glide path” fee was
practically zero. Finally, the impact of “other” bounced around some but ended near zero.
Figure 6: Cumulative Active Return—Fidelity Freedom 2030 Funds (Dec. 2006 – Sept. 2011)
Asset Allocation
Weighted Average Sub-Fund Alpha
Glide Path Fee
Other
3%
Cumulative Active Return
2%
1%
-1%
-2%
-3%
-4%
-5%
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
-6%
Source: Morningstar Direct
The Whole Fund Family
The same analysis that was completed above for the Fidelity Freedom 2030 fund was repeated for
the rest of the Fidelity Freedom funds. In Figure 7 we have annualized the four components of active
return: asset allocation, sub-fund alphas, glide path fees, and other. The red line identifies the
average annual active return across the entire Fidelity Freedom fund family of negative 100 basis
points between October 2006 and September 2011. Recall that this corresponds to the average
arithmetic underperformance of the Fidelity Freedom funds relative to the beta-adjusted Morningstar
Lifetime Allocation Indexes presented at the beginning of the article in Table 2.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
24
Figure 7: Annual Active Return Decomposition for Fidelity Freedom Funds (Dec. 2006 – Sept. 2011)
0.5%
(a) Asset Allocation
(b) Sub-Fund Alpha
(c) Glide Path Fees
(d) Other
Annual Active Return
0.0%
-0.5%
-1.0%
-1.5%
Income
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
-2.0%
Source: Morningstar Direct
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
25
Conclusion
The importance of target date funds to America’s retirement system is difficult to overstate; yet, to
date the industry has lacked definitive guidance on how to benchmark target date funds and target
date fund families. This article attempts to help fill that void.
Frustratingly, benchmark-relative comparisons will not tell you if the glide path itself is “good.” With
that in mind, we propose a comprehensive framework for decomposing the active return of a fund
relative to a benchmark into four components: asset allocation, sub-fund alphas, glide path fee, and
other. The process is both data and labor intensive although given the importance of target date
funds we believe the effort is necessary.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
26
Appendix
As mentioned in the article, on a period-by-period basis one can attempt to determine which asset
class exposures contributed to, or detracted from the performance of a fund relative to the asset
class exposures of the benchmark. We believe this process is easiest when the effective asset
allocation of the fund is expressed or represented using the asset classes that make up the
benchmark. The process is somewhat complicated by our recommendation to beta-adjust the
benchmark.
We continue our example, using the Fidelity Freedom 2030 fund and the Morningstar Moderate
Lifetime Allocation 2030 index. Please recall that the effective asset allocation of Fidelity Freedom
2030 was identified earlier in Table 4. Table A1 shows the allocations of the Morningstar Moderate
Lifetime Allocation 2030 index from October 2006 to September 2011. Notice that we have
placeholders of sorts for high yield and REITs in which the two corresponding rows are all zeros. The
Morningstar Moderate Lifetime Allocation index contains REITs, but the exposure to them is from
the underlying equity indices based on their relative market capitalization weights rather than as a
separate, individual underlying index carve out. In contrast with the Morningstar Moderate Lifetime
Allocation index, Fidelity Freedom 2030 fund seems to have dedicated allocations to high yield
bonds and REITs (an allocation that goes beyond a simple market capitalization based weight).
The benchmark’s asset class exposures must in turn be modified to account for the “betaadjustment.” For a given quarter, we multiply all of the asset class exposures by the average 12month rolling beta for each of the three months in the quarter. For example, for the Fidelity Freedom
2030 fund the 12-month rolling betas corresponding to October 2006, November 2006, and
December 2006 were 0.91, 0.97, and 0.93, respectively, with an average just below 0.94. The
quarterly asset class exposures of the index for December 2006 are then multiplied by 0.94
representing the average beta during the quarter. In the final step, the “cash” exposure (that was
just multiplied by 0.94) is increased by 6 percentage points so that the modified weights once again
sum to 100%. These modified weights are displayed in Table A2.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
27
Table A1: Detailed Asset Allocation of Morningstar Moderate Lifetime Allocation 2030 Index
(December 2006 – September 2011)
Morningstar Moderate 2030
U.S. Large-Cap Growth Equity
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
9.26
9.26
9.24
9.24
9.24
9.24
9.22
9.22
9.22
9.22
U.S. Large-Cap Blend Equity
10.24
10.24
10.23
10.23
10.23
10.23
10.22
10.22
10.22
10.22
U.S. Large-Cap Value Equity
11.37
11.37
11.38
11.38
11.38
11.38
11.38
11.38
11.38
11.38
U.S. Mid-Cap Growth Equity
3.97
3.97
3.96
3.96
3.96
3.96
3.95
3.95
3.95
3.95
U.S. Mid-Cap Blend Equity
4.39
4.39
4.39
4.39
4.39
4.39
4.38
4.38
4.38
4.38
U.S. Mid-Cap Value Equity
4.87
4.87
4.88
4.88
4.88
4.88
4.88
4.88
4.88
4.88
U.S. Small-Cap Growth Equity
3.88
3.88
3.80
3.80
3.80
3.80
3.72
3.72
3.72
3.72
U.S. Small-Cap Blend Equity
4.29
4.29
4.21
4.21
4.21
4.21
4.12
4.12
4.12
4.12
U.S. Small-Cap Value Equity
4.76
4.76
4.68
4.68
4.68
4.68
4.59
4.59
4.59
4.59
Non-US Developed Equity
23.17
23.17
22.75
22.75
22.75
22.75
22.33
22.33
22.33
22.33
Emerging Markets Equity
4.53
4.53
4.39
4.39
4.39
4.39
4.26
4.26
4.26
4.26
U.S. REITs
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Commodities
4.73
4.73
4.77
4.77
4.77
4.77
4.80
4.80
4.80
4.80
High-Yield Bonds
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Non-U.S. Bonds
2.17
2.17
2.29
2.29
2.29
2.29
2.41
2.41
2.41
2.41
Long-term Bonds
5.06
5.06
5.34
5.34
5.34
5.34
5.62
5.62
5.62
5.62
Intermediate-term Bonds
1.95
1.95
2.13
2.13
2.13
2.13
2.31
2.31
2.31
2.31
Shot-term Bonds
0.72
0.72
0.81
0.8
0.81
0.81
0.89
0.89
0.89
0.89
TIPS
0.49
0.49
0.59
0.59
0.59
0.59
0.70
0.70
0.70
0.70
Cash
0.14
0.14
0.17
0.17
0.17
0.17
0.20
0.20
0.20
0.20
Total
100
100
100
100
100
100
100
100
100
100
June
2009
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2009
Morningstar Moderate 2030
U.S. Large-Cap Growth Equity
9.20
9.20
9.20
9.20
9.20
9.75
9.75
9.75
9.75
9.61
U.S. Large-Cap Blend Equity
10.22
10.22
10.22
10.22
10.22
10.38
10.38
10.38
10.38
10.22
U.S. Large-Cap Value Equity
11.39
11.39
11.39
11.39
11.39
11.33
11.33
11.33
11.33
11.15
U.S. Mid-Cap Growth Equity
3.94
3.94
3.94
3.94
3.94
3.51
3.51
3.51
3.51
3.45
U.S. Mid-Cap Blend Equity
4.38
4.38
4.38
4.38
4.38
4.45
4.45
4.45
4.45
4.38
U.S. Mid-Cap Value Equity
4.88
4.88
4.88
4.88
4.88
5.53
5.53
5.53
5.53
5.44
U.S. Small-Cap Growth Equity
3.64
3.64
3.64
3.64
3.64
2.70
2.70
2.70
2.70
2.61
U.S. Small-Cap Blend Equity
4.04
4.04
4.04
4.04
4.04
3.42
3.42
3.42
3.42
3.32
U.S. Small-Cap Value Equity
4.50
4.50
4.50
4.50
4.50
4.25
4.25
4.25
4.25
4.12
Non-US Developed Equity
21.91
21.91
21.91
21.91
21.91
19.55
19.55
19.55
19.55
18.96
Emerging Markets Equity
4.12
4.12
4.12
4.12
4.12
6.09
6.09
6.09
6.09
5.82
U.S. REITs
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Commodities
4.83
4.83
4.83
4.83
4.83
4.83
4.83
4.83
4.83
4.87
High-Yield Bonds
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Non-U.S. Bonds
2.54
2.54
2.54
2.54
2.54
2.37
2.37
2.37
2.37
2.62
Long-term Bonds
5.90
5.90
5.90
5.90
5.90
6.72
6.72
6.72
6.72
6.64
Intermediate-term Bonds
2.50
2.50
2.50
2.50
2.50
2.84
2.84
2.84
2.84
4.78
Shot-term Bonds
0.97
0.97
0.97
0.97
0.97
1.11
1.11
1.11
1.11
0.52
TIPS
0.81
0.8
0.81
0.81
0.81
0.92
0.92
0.92
0.92
1.15
Cash
0.23
0.23
0.23
0.23
0.23
0.26
0.26
0.26
0.26
0.33
Total
100
100
100
100
100
100
100
100
100
100
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
28
Table A2: (Beta-Adjusted) Detailed Asset Allocation of Morningstar Moderate Lifetime Allocation
2030 Index (December 2006 – September 2011)
Morningstar Moderate 2030
(Beta-Adjusted)
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
8.99
U.S. Large-Cap Growth Equity
8.67
8.84
9.31
9.39
9.75
10.17
10.21
9.67
9.19
U.S. Large-Cap Blend Equity
9.58
9.77
10.31
10.40
10.80
11.26
11.32
10.72
10.19
9.96
U.S. Large-Cap Value Equity
10.64
10.85
11.46
11.56
12.00
12.51
12.60
11.93
11.34
11.09
U.S. Mid-Cap Growth Equity
3.71
3.79
3.99
4.02
4.18
4.36
4.38
4.14
3.94
3.85
U.S. Mid-Cap Blend Equity
4.11
4.19
4.42
4.46
4.63
4.82
4.85
4.59
4.37
4.27
U.S. Mid-Cap Value Equity
4.56
4.65
4.91
4.95
5.14
5.36
5.40
5.11
4.86
4.75
U.S. Small-Cap Growth Equity
3.63
3.70
3.83
3.86
4.01
4.18
4.12
3.90
3.71
3.62
U.S. Small-Cap Blend Equity
4.01
4.09
4.24
4.27
4.44
4.63
4.56
4.32
4.11
4.02
U.S. Small-Cap Value Equity
4.46
4.55
4.71
4.75
4.93
5.14
5.08
4.81
4.57
4.47
Non-US Developed Equity
21.68
22.11
22.92
23.11
24.00
25.02
24.73
23.41
22.26
21.76
Emerging Markets Equity
4.24
4.32
4.43
4.46
4.64
4.83
4.71
4.46
4.24
4.15
U.S. REITs
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Commodities
4.43
4.52
4.80
4.84
5.03
5.24
5.31
5.03
4.78
4.68
High-Yield Bonds
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Non-U.S. Bonds
2.03
2.08
2.31
2.33
2.42
2.52
2.67
2.53
2.41
2.35
Long-term Bonds
4.74
4.83
5.38
5.43
5.64
5.88
6.22
5.89
5.60
5.48
Intermediate-term Bonds
1.82
1.86
2.15
2.16
2.25
2.34
2.56
2.42
2.31
2.25
Shot-term Bonds
0.68
0.69
0.81
0.82
0.85
0.89
0.98
0.93
0.89
0.87
TIPS
0.46
0.46
0.60
0.60
0.63
0.65
0.78
0.74
0.70
0.68
Cash
6.55
4.69
-0.60
-1.43
-5.33
-9.81
-10.50
-4.60
0.53
2.77
Total
100
100
100
100
100
100
100
100
100
100
June
2009
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2009
9.22
Morningstar Moderate 2030
(Beta-Adjusted)
U.S. Large-Cap Growth Equity
8.86
8.90
8.79
8.70
8.88
9.42
9.33
9.23
9.32
U.S. Large-Cap Blend Equity
9.83
9.88
9.76
9.66
9.85
10.03
9.93
9.83
9.92
9.81
U.S. Large-Cap Value Equity
10.96
11.01
10.87
10.77
10.98
10.94
10.83
10.72
10.83
10.71
U.S. Mid-Cap Growth Equity
3.80
3.81
3.77
3.73
3.80
3.39
3.35
3.32
3.35
3.31
U.S. Mid-Cap Blend Equity
4.21
4.24
4.18
4.14
4.22
4.30
4.26
4.21
4.25
4.21
U.S. Mid-Cap Value Equity
4.70
4.72
4.66
4.62
4.71
5.34
5.29
5.23
5.28
5.23
U.S. Small-Cap Growth Equity
3.50
3.52
3.47
3.44
3.51
2.60
2.58
2.55
2.58
2.51
U.S. Small-Cap Blend Equity
3.89
3.90
3.85
3.82
3.89
3.31
3.27
3.24
3.27
3.18
U.S. Small-Cap Value Equity
4.33
4.35
4.30
4.26
4.34
4.11
4.07
4.02
4.07
3.95
Non-US Developed Equity
21.09
21.19
20.92
20.73
21.14
18.88
18.69
18.50
18.69
18.20
Emerging Markets Equity
3.97
3.99
3.94
3.90
3.98
5.88
5.82
5.76
5.82
5.59
U.S. REITs
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Commodities
4.65
4.67
4.61
4.57
4.66
4.67
4.62
4.57
4.62
4.67
High-Yield Bonds
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Non-U.S. Bonds
2.44
2.45
2.42
2.40
2.45
2.29
2.27
2.24
2.26
2.51
Long-term Bonds
5.68
5.71
5.63
5.58
5.69
6.49
6.42
6.36
6.42
6.37
Intermediate-term Bonds
2.40
2.41
2.38
2.36
2.41
2.74
2.72
2.69
2.72
4.59
Shot-term Bonds
0.94
0.94
0.93
0.92
0.94
1.07
1.06
1.05
1.06
0.50
TIPS
0.78
0.78
0.77
0.77
0.78
0.89
0.88
0.87
0.88
1.10
Cash
3.98
3.51
4.75
5.64
3.77
3.68
4.62
5.61
4.66
4.34
Total
100
100
100
100
100
100
100
100
100
100
Source: Morningstar Direct.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
29
The weights of the effective asset allocation (Table 4) and the modified index weights (Table A2)
are then coupled with the appropriate asset class returns. Then in a pairwise subtraction, from each
weighted asset class return from the fund we’ve subtracted the weighted asset class return from
the modified index to identify the active return associated with each asset class exposure. Skipping
the details of the intermediate step, Table A3 shows the values that were added / subtracted due to
each asset class relative to that of the beta-adjusted benchmark. Positive contributors are displayed
in green and negative contributors are in red. For example, at the top left-hand corner of the table,
during the quarter ending December of 2006, Fidelity Freedom 2030’s allocation to US Large Cap
Growth added 42 basis points of active return. The final row of Table A3 shows the average of the
detailed asset allocation active returns for each quarter. These numbers are very similar to the final
row of Table 5. The slight differences occur for two reasons. First, the intra-quarter implied weights
of the beta-adjusted benchmark that were implicit in the calculation of the asset allocation return in
Table 5 don’t necessarily perfectly correspond to the ending quarter weights identified in Table A2.
Second, our beta-adjusted benchmarks are created using the Citi 3-Month Treasury Bill index, while
this analysis uses the Morningstar Cash Index.
Table A3: Active Returns (December 2006 – September 2011)
Dec
2006
March
2007
June
2007
Sept
2007
Dec
2007
March
2008
June
2008
Sept
2008
Dec
2008
March
2009
June
2009
U.S. Large-Cap Growth Equity
0.42
0.12
0.48
0.42
–0.09
–0.67
0.23
–0.86
–1.40
0.01
0.67
U.S. Large-Cap Blend Equity
0.37
–0.05
0.23
0.09
–0.02
–0.13
–0.09
–0.12
–0.77
–0.41
0.55
U.S. Large-Cap Value Equity
0.02
0.00
–0.02
0.00
–0.04
0.01
0.00
–0.02
–0.49
–0.75
0.53
U.S. Mid-Cap Growth Equity
0.25
0.19
0.23
0.11
0.00
–0.09
0.08
–0.29
–0.23
–0.01
0.07
U.S. Mid-Cap Blend Equity
–0.02
0.00
0.01
0.01
0.03
0.02
–0.01
–0.03
–0.26
0.04
0.04
U.S. Mid-Cap Value Equity
–0.16
–0.08
–0.09
0.13
0.19
0.25
0.14
0.08
0.26
0.28
–0.08
U.S. Small-Cap Growth Equity
–0.10
–0.05
–0.07
–0.02
0.03
0.26
–0.07
0.15
0.29
0.15
–0.26
U.S. Small-Cap Blend Equity
–0.24
–0.07
–0.15
0.14
0.18
0.22
–0.04
0.16
0.60
0.33
–0.48
U.S. Small-Cap Value Equity
–0.32
–0.05
–0.10
0.24
0.16
0.15
0.28
–0.23
0.59
0.62
–0.52
Non-US Developed Equity
–0.21
–0.11
–0.27
–0.09
0.07
0.65
0.13
1.08
1.28
0.62
–0.88
Emerging Markets Equity
–0.57
–0.05
–0.46
–0.43
–0.22
0.34
0.02
0.40
0.67
0.00
–0.39
0.05
0.02
–0.05
0.01
–0.09
0.01
–0.02
0.00
–0.78
–0.04
0.49
–0.10
–0.13
–0.13
–0.57
–0.46
–0.45
–0.84
0.87
1.06
0.16
–0.58
U.S. REITs
Commodities
High-Yield Bonds
0.24
0.15
0.01
0.02
–0.08
–0.20
0.12
–0.59
–0.97
0.35
1.42
Non-U.S. Bonds
–0.03
–0.02
0.03
–0.17
–0.09
–0.26
0.12
0.11
–0.20
0.08
–0.13
Long-term Bonds
–0.04
–0.01
–0.01
0.03
–0.07
–0.08
–0.04
0.05
0.07
–0.32
0.03
Intermediate-term Bonds
0.01
0.01
0.00
0.02
0.03
0.04
–0.02
0.01
0.05
0.05
0.00
Shot-term Bonds
0.00
0.00
0.00
–0.01
–0.01
–0.02
0.01
0.00
–0.03
0.00
–0.01
0.00
TIPS
0.00
0.00
0.00
0.00
–0.01
–0.01
0.00
0.01
0.02
0.02
Cash
–0.04
–0.01
0.05
0.05
0.08
0.10
0.04
0.03
0.00
0.00
0.00
Total
–0.43
–0.14
–0.26
–0.12
–0.41
0.18
0.15
0.82
–0.61
1.53
0.39
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
30
Table A3 Continued: Active Returns (December 2006 – September 2011)
Morningstar Moderate 2030
(Beta-Adjusted)
Sept
2009
Dec
2009
March
2010
June
2010
Sept
2010
Dec
2010
March
2011
June
2011
Sept
2011
Average
U.S. Large-Cap Growth Equity
0.53
0.37
0.09
–0.34
0.21
0.18
0.08
0.01
–0.19
0.01
U.S. Large-Cap Blend Equity
0.48
0.27
0.20
–0.24
0.03
–0.04
–0.03
0.00
0.03
0.02
U.S. Large-Cap Value Equity
0.81
0.12
0.24
–0.25
0.15
0.10
0.02
0.00
–0.01
0.02
U.S. Mid-Cap Growth Equity
0.08
0.07
0.04
–0.03
0.04
0.06
–0.03
–0.01
–0.13
0.02
U.S. Mid-Cap Blend Equity
0.03
0.01
–0.05
0.06
–0.14
–0.13
–0.16
0.01
0.18
–0.02
U.S. Mid-Cap Value Equity
–0.15
–0.02
–0.01
0.06
–0.29
–0.30
–0.23
0.03
0.50
0.02
U.S. Small-Cap Growth Equity
–0.23
–0.05
–0.14
0.16
–0.13
–0.10
–0.12
0.00
0.01
–0.01
U.S. Small-Cap Blend Equity
–0.57
–0.12
–0.24
0.27
–0.27
–0.32
–0.25
0.02
0.22
–0.03
U.S. Small-Cap Value Equity
–0.84
–0.18
–0.33
0.30
–0.32
–0.38
–0.21
0.05
0.45
–0.03
Non-US Developed Equity
–0.69
–0.07
–0.06
0.50
–0.12
0.04
0.00
0.00
–0.09
0.09
Emerging Markets Equity
–0.41
–0.16
–0.05
0.13
–0.43
–0.10
–0.03
0.00
0.05
–0.08
U.S. REITs
0.36
0.09
0.05
–0.02
0.08
0.04
0.03
0.00
–0.15
0.00
–0.06
–0.30
0.08
0.00
0.21
0.65
0.32
–0.41
–0.25
–0.05
High-Yield Bonds
0.83
0.40
0.29
–0.01
0.39
0.18
0.22
0.07
–0.37
0.12
Non-U.S. Bonds
–0.08
0.03
0.03
0.02
–0.11
0.03
–0.01
–0.07
–0.01
–0.04
Long-term Bonds
–0.13
0.04
–0.04
–0.14
–0.13
0.12
0.00
–0.02
–0.17
–0.04
Intermediate-term Bonds
0.05
0.01
0.05
0.14
0.06
–0.02
0.02
0.06
0.01
0.03
Shot-term Bonds
0.00
0.00
0.00
0.01
0.01
0.00
0.00
0.01
0.00
0.00
TIPS
–0.01
0.00
0.00
0.01
0.01
0.00
0.02
–0.01
–0.04
0.00
Cash
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.02
Total
0.01
0.52
0.16
0.63
–0.73
0.01
–0.35
–0.27
0.03
0.06
Commodities
Source: Morningstar Direct.
References
Thomas Idzorek, Jeremy Stempien, and Nathan Voris. (2010). “Selecting a Target Date Benchmark.”
Morningstar’s Ibbotson Research Center Working Paper.
Sharpe, William F. (1992). “Asset Allocation: Management Style and Performance Measurement.”
The Journal of Portfolio Management, Winter, 7-19.
Siegel, Laurence B. (2003). Benchmarks and Investment Management.
Virginia: The Research Foundation of the Association for Investment Management and Research.
Acknowledgements
We especially want to thank David Blanchett and Patrick Ryan for tremendous assistance with this
paper. The paper also benefited from valuable comments and assistance from Josh Charlson, Cindy
Tsai, and Cindy Galiano.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
31
About Ibbotson
Ibbotson Associates is part of the Morningstar Investment Management division of Morningstar,
and is a leading independent provider of asset allocation, manager selection, and portfolio
construction services. The company leverages its innovative academic research to create
customized investment advisory solutions that help investors meet their goals. Founded by Professor
Roger Ibbotson in 1977, Ibbotson Associates is a registered investment advisor and a wholly owned
subsidiary of Morningstar, Inc.
Morningstar Investment Management is a division of Morningstar. Morningstar Investment
Management includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment
Services; all registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. All
investment advisory services described herein are provided by one or more of the registered
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For more information, contact:
Ibbotson Associates
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312 696-6700
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www.ibbotson.com.
Important Disclosures
The above commentary is for informational purposes only and should not be viewed as an offer to
buy or sell a particular security. The data and/or information noted are from what we believe to be
reliable sources, however Ibbotson has no control over the means or methods used to collect the
data/information and therefore cannot guarantee their accuracy or completeness. The opinions and
estimates noted herein are accurate as of a certain date and are subject to change. The indices
referenced are unmanaged and cannot be invested in directly. Past performance is no guarantee of
future results.
This commentary may contain forward-looking statements, which reflect our current expectations or
forecasts of future events. Forward-looking statements are inherently subject to, among other
things, risks, uncertainties and assumptions which could cause actual events, results, performance
or prospects to differ materiality from those expressed in, or implied by, these forward-looking
statements. The forward-looking information contained in this commentary is as of the date of this
report and subject to change. There should not be an expectation that such information will in all
circumstances be updated, supplemented or revised whether as a result of new information,
changing circumstances, future events or otherwise.
An investment in a target date fund is not guaranteed, and you may experience losses, including
losses near, at, or after the target date. There is no guarantee that the fund will provide adequate
income at and through your retirement.
© 2012 Ibbotson Associates, Inc. All rights reserved. Ibbotson Associates, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar,
Inc. The information contained in this presentation is the proprietary material of Ibbotson Associates. Reproduction, transcription or other use, by any means, in
whole or in part, without the prior written consent of Ibbotson Associates, is prohibited.
32