Target Date & Lifecycle Mutual Funds: Right on Target by IceCap Asset Management

How do you like them apples?

Switzerland (1307) Talk about pressure – you could cut it with a knife, or in this case, pierce it with an arrow. From 50 paces away, no one could tell who was more nervous, the red faced boy or the red faced apple. One thing was certain, the oncoming arrow would soon make a legend out of one of them.

Luckily for the boy, the apple lost and his father won – William Tell was right on target.

Canada (1985) Hazy smoke and stale ale filled the air, and his opponents rocks filled the rings. Al “the Iceman” Hackner had one last shot at curling glory, and to be crowned champion he would need to execute a near impossible double-raised takeout.

Luckily for 100s of Northern Ontario curling fans, the impossible became the possible – Al “the Iceman” Hackner was right on target.

United States (1993) The mid-night oil was burning faster than the batteries in their calculators. The financial wiz-kids desperately needed to create a new product to attract millions of investors and their billions of dollars.

Over 20 years later, these millions and billions are about to discover that their Target Date Mutual Funds and their Lifecycle Mutual Funds are about to miss the target.

And when we say miss, we mean really miss.

What planet are you from?

Fiction and fantasy worlds are certainly enjoyable and entertaining. If you think about it, there’s nothing better than escapism and being able to go to a place to forget or to avoid the unpleasantries of life.

We’ve all experienced these worlds in books, big screens, small screens and even privately in the space between our own little ears.

Unfortunately, the investment world and our global economy has been pushed, squeezed and throttled into such an unrecognisable state, that most people are unable to distinguish between monetary fantasy and good old fashion reality.

There is some good news – but one must first recognise what is real and what isn’t. Once this occurs, you will see that there are epic distortions in the world. Once you free your mind to think outside of the Wall Street/Bay Street/Threadneedle Street box, you will see that we are indeed in the late stages of a global government bond bubble.

Better still, once you realise this bubble will break it becomes crystal clear that many bond investments and companies tied to the bond market will not do very well at all.

And this is the foundation and starting point in understanding the severe risk inherent in Target Date & Lifecycle Mutual Funds.

White shoes, white socks & white belts

Yet, the biggest irony of them all is that not all Target Date and Lifecycle Funds are at extreme risk of severe losses.

The irony is that the Target Date Funds and Lifecycle Funds that are sold as the most conservative funds are actually becoming the most risky funds.

The reason for this paradox, is that the investment theory used in the foundation of these mutual funds fundamentally believes that bonds are always safer than stocks in the short-run.

This is crucial, because investors in these funds who have specifically chosen conservative fund profiles – in other words, the funds with a near term “maturity date” – are actually jumping head, hands and feet first into the eye of the coming bond market monster.

And when they hit this monster – it won’t make sense, and worse still, it won’t be pretty.

Perfect Failure

You can accuse the investment industry of being many things, but you can never accuse it of being boring or unimaginative. In fact, behind all of those commercials of setting suns, walks on the beach, and gentle breezes in your sail, lies a cut throat business full of competitors willing to throw anyone under a bus simply to convince you to buy their latest investment product.

Target Date & Lifecycle Mutual Funds

See full PDF below.