T. Rowe Price's Balanced Fund has returned about 5.5 percent in the past 12 months as of March 12 compared with a gain of about 3.8 percent by the firm's target-date fund for those retiring around 2050. The 2020 target-date fund has returned 4.6 percent in the same time period, data compiled by Bloomberg show.
Target-date funds generally are going to have a higher equity allocation than a balanced fund for a period of decades while a worker is saving, which will tend to produce better returns over longer time periods, said Jerome Clark, portfolio manager of Baltimore-based T. Rowe's retirement funds. About 90 percent of T. Rowe's target-date funds are invested in stocks until investors reach age 40 and by the time they are around their expected retirement age that figure has dropped to about 55 percent, he said.
Participants and plan sponsors have adopted target-date funds because they save investors from common mistakes such as lack of appropriate diversification, not rebalancing or buying high and selling low, Clark said.
"I don't think it has over the period of time a big return advantage," said Pozen referring to target-date funds. "But unfortunately you're getting more investor confusion."