The U.S. Securities and Exchange Commission said on Wednesday it will propose increased disclosure in the marketing of the increasingly popular target date mutual funds.
In an open meeting, SEC Chairman Mary Schapiro said the proposed changes to naming, advertising materials and risk disclosures are intended to reduce the possibility of investor confusion, since many investors in the funds are not typically active market observers or researchers.
Target date funds are those designed to automatically change their asset mix over time, according to a selected time frame -- most often, an investor's year of anticipated retirement.
Most of the funds are designed so that the mix of investments -- such as stocks, bonds and cash -- will get more conservative as the target date approaches, to shield investors from possible heavy losses just before retirement.
Commissioners said that because U.S. investors increasingly manage their retirement and investment portfolios themselves, alleviating misunderstanding and confusion over performance expectations for target date funds is a priority -- especially after 2008's performance.
In 2008, funds with a 2010 target date lost an average of 24 percent, in a range of about 9 percent to 41 percent, the SEC said.
Investors require not just any disclosure, but high quality disclosure, said SEC commissioner Luis Aguilar during the open meeting.
Assets of target date funds currently registered with the SEC are about $270 billion, according to the commission. But Aguilar said the funds' assets are forecast to reach $880 billion by 2015 -- an increasingly large slice of the overall mutual fund industry.
The SEC's first proposed change would require marketing materials for any fund that includes a target date in its name to disclose the planned asset allocation of the fund at the target date.
Additional proposals called for marketing materials to include a visual depiction of a fund's planned changes to asset allocation over time.
The SEC also said investors should be urged to consider possible losses from investing and understand changes in asset allocation over time.
Finally, marketing materials should state that selecting a fund based solely on a single factor might not be appropriate for all investors, and should dispel misunderstandings that the target date funds require little to no monitoring.
The SEC will take public comment on its proposed rule amendments for 60 days.
(Reporting by Lauren Keiper, editing by Ros Krasny and Gerald E. McCormick)