(Bloomberg News) Investors seeking peace of mind from target-date funds for their retirement planning may find the biggest risk lies in choosing the money manager.

American Century Investments’ group of target-date funds, which have a lighter allocation to stocks relative to peers, had the best performance among large providers after adjusting for price swings in the three years ended December 31, according to the Bloomberg Riskless Return ranking.

The firm’s funds topped five of eight categories grouped by retirement date, or vintage. AllianceBernstein LP’s more aggressive funds were last in all but one group.

Target-date funds are designed to reduce the level of risk as the investor gets closer to a chosen retirement date. While as a group the funds have succeeded in becoming more conservative as clients age, specific fund families such as American Century and AllianceBernstein go about investing in very different ways, meaning the manager selection can have a greater impact on risk-adjusted performance than the vintage.

“Investors should assume these funds are not created equally,” said Josh Charlson, a senior fund analyst in Chicago at research firm Morningstar Inc. “There are a lot of differences in their asset allocation, especially around the point of retirement.”

The Riskless Return ranking included funds from the 20 largest target-date providers linked to retirement years ranging from 2015 to 2050. The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, and gives a measure of performance per unit of risk. Higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.

American Century’s funds keep a more conservative mix of assets than rivals for most of their lives, as measured by allocation to stocks, said Richard Weiss, senior portfolio manager at the firm. Holding less in stocks makes a fund less volatile.

“The overall effect of American Century’s approach is one of moderation, in line with management’s goal of reducing the risk of shocks,” Charlson wrote in Morningstar’s report.

Target-date vehicles, which are multi-asset mutual funds that trim stocks and increase fixed income at a preset rate as a holder ages, have almost tripled in five years to $460 billion in U.S. assets, according to the Investment Company Institute. They promise a no-fuss way to keep savings appropriately invested for decades. The biggest providers include Boston-based Fidelity Investments and Valley Forge, Pa.-based Vanguard Group Inc.

Other fast-growing target-date fund providers include Kansas City, Mo.-based American Century’s Livestrong series, with $3.2 billion in target-date deposits in the past three years, and New York-based JPMorgan Chase & Co.

Regarding AllianceBernstein’s recent performance, the head of research for the company’s defined-contribution team, Christopher Nikolich, said the risk and return patterns in the past three years represent an “anomaly” as stocks outperformed bonds by a relatively modest margin in historical terms. Three years isn’t enough time to fairly measure performance, he noted.

“We design these funds for participants in what will be a very long investing cycle––20 or 30 years,” Nikolich said. “What’s going to drive success will be their wealth accumulation over that period, not a short-term risk-adjusted return measure.”
Target-date funds first appeared in 1993, and didn’t breach $100 billion in assets until 2006. AllianceBernstein opened its first target-date funds in 2005.