Lifestyle funds have proven more resilient than equity funds during this decade of post-bubble market malaise, and John Hancock's Lifestyle Funds have seen rapid distribution growth this year through 401(k) plans and variable annuities.
Bob Boyda, a senior vice president at John Hancock Investment Management Services, a Boston unit of Toronto's Manulife Financial Corp., said that, though markets have been down or sluggish during most of the past five years, none of Hancock's Lifestyle Funds lost money.
"Clients are buying and holding these multi-asset-class, multistrategy funds, and they are getting the benefits of diversity and performance," he said.
Plan participants who invested in the company's Lifestyle Funds earned 3.15% to 4.24% more than participants who adopted any other investment strategy, according to Hancock research released Monday. More than 91% of participants who picked other products could have gotten better performance from a single Hancock Lifestyle Fund, the company said.
Dalbar Inc., a financial research company in Boston, has reported that the average asset allocation fund, another name for lifestyle funds, returned 1.3% in the past five years. In the same period the average equity fund declined 1.8%, and the Standard & Poor's 500 Composite Index was down 2.3%. At Hancock, 401(k) investors in the Lifestyle Funds gained 3.98% during 2000-2004 while those that used other funds were down 0.3%.
Michael Porter, a senior research analyst at Lipper Inc., a Reuters company, said more banks are opening life-cycle funds - a category that includes lifestyle - as they gain momentum. Since the end of 2003, he said, the life-cycle fund total has grown to 78, from 60, and he expects it to reach 100 by yearend.
Assets in life-cycle funds rose 37.8% last year, to $139.7 billion, Lipper reported in March.
Mr. Boyda said Hancock's five Lifestyle Funds grew 22% in the first half of this year, to $24.4 billion of assets. He said he expects the fund family, which was started in 1997, to reach $30 billion under management by yearend. By Dec. 31, he said, he expects the funds to have half their assets under management from 401(k) plans and half from variable annuities.
"I'd like to see assets double in the next five years, and perhaps they will do even better than that," he said. "We certainly have high expectations. We expect growth will continue in the 401(k) business and" in variable annuities.
Mr. Boyda said such substantial growth has been the norm for life-cycle funds industrywide.
Mr. Porter said the funds have grown quickly in the past three years because investors know they need to put their money to work but are wary about where. The two types of life-cycle portfolios, lifestyle and target-date, make predetermined asset allocation decisions based on a customer's time horizon and risk tolerance. These funds are very popular in retirement plans, he said.
Marianne Sullivan, a senior vice president for investment-client services at CitiStreet in Quincy, Mass., said 70% to 80% of requests for proposals to supply retirement plans require provider companies to offer target-date funds as an option in a 401(k) program. CitiStreet is a joint venture of Citicorp Inc. and State Street Corp.
Mr. Boyda said 70% of Hancock's 401(k) investors have put money in the Lifestyle Funds. In the second quarter, it reported, these funds were selected by 63% of variable annuity buyers, up from 55% the year earlier.
"Our intent is to get investors to stay in a single investment for a long time," Mr. Boyda said. "We want to get them into a buy-and-hold behavior. We feel that will make them a successful investor."
The Dalbar study says investors who held a mutual fund investment for 20 years averaged a 3.2% annual return.
Many banking companies, including Bank of America Corp. and Wells Fargo & Co., offer life-cycle funds. Analysts said banks are well positioned to gather share with these products but that a handful of companies still dominate. Two - Fidelity Investments, with a 33% share, and Vanguard, with 16.6% -have nearly half the market, according to Lipper.
Other companies are looking to beef up, or launch, their own life-cycle products.
On Thursday, Arrivato Advisors LLC started the Arrivato Dow Jones U.S. Target Date Funds. The five portfolios make up the first fund family based on the new Dow Jones U.S. Target Date Indexes. And on Wednesday, AIG Valic, a unit of American International Group Inc., introduced a series of target-date funds. The High Watermark Funds, which will be distributed through AIG retirement plans, guarantee both principal and market gains achieved during the life of the investment for shareholders who remain invested to maturity.
In July, Russell Investment Group announced plans to hire wholesalers nationally as it looked to increase distribution through banks and other channels for its life-cycle portfolios - the LifePoint Funds. The family accounted for $7.5 billion of Russell's $23 billion of assets under management at June 30.
Hancock is distributing its Lifestyle Funds through intermediaries, including banks. Mr. Boyda, who worked in product distribution for seven years at Canadian Imperial Bank of Commerce, said the funds are ideal for banks.
"We know the problems that people on the platform have with selling products," he said. "We always had them in mind when we were crafting these. This product is easier, and it is convenient. These products make the salesman's life easier and their client's life easier."
