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When saving for retirement or other forthcoming costs such as university tuition, target-date funds seem to offer the ultimate in one-stop shopping. You choose a year when you need the cash, invest your money and forget about it. The funds's assets then slowly shift from mostly stocks to safer bonds as the key date nears.

Assets in these offerings have been growing in Canada, rising by mid-2015 to $7.6-billion in mutual and segregated funds, and $20.6-billion in funds offered by employer-sponsored pension plans, according to the Toronto-based analysis firm Investor Economics.

But investors should look under the hood, as asset mixes can differ greatly, even among funds with the same target date. Some funds have even been terminated early in their lifespan.

These funds can be an appropriate vehicle for someone who doesn't want to use an adviser to handle their asset mix and doesn't want or is unable to track their investments over time, says Jeffrey Bunce, a research analyst at Morningstar Canada. "It's also [often] the default option when you enter a pension plan and do not want to pick your investments yourself."

The attraction is that these funds are managed by professionals who buy and sell securities to make sure they stay on track toward the target date, Mr. Bunce said. "If you are managing your own investments and the equity market runs up a bunch, you may not necessarily be selling some, and putting it into bonds to rebalance your asset allocation."

Because target funds have different wrinkles, investors need to scrutinize them, he said. If one fund has a higher allocation to stocks than another, "that will definitely have an impact on the return you get over time," he noted.

A glance at some 2025 target-date funds yields noticeably different asset mixes. A PH&N LifeTime portfolio, which invests in Royal Bank of Canada and PH&N mutual funds and a Vanguard exchange traded fund (ETF), had about 48 per cent in equities recently. That compares with about 53 per cent in a Fidelity ClearPath portfolio, which invests in Fidelity mutual funds, and 61 per cent in a Bank of Montreal LifeStage portfolio, which invests in BMO ETFs.

"A drawback of this [target date] strategy is that it is difficult to evaluate the performance of the funds," Mr. Bunce said. "You can't really compare them with their peers" because they have different asset mixes and a different schedule for assets shifting over their set time frame.

As for fees, target-date funds may be slightly more expensive than a conventional fund-of-funds product geared to different risk tolerances. But the fees of the former will fall as the asset mix moves toward cheaper fixed-income investments, he added.

"Still, fees matter because they compound over time. If you can get the lowest-cost possible, it is going to be better for your retirement income," Mr. Bunce said.

Investors should choose a target-fund provider carefully because some companies may unexpectedly withdraw their offerings from the market, Mr. Bunce said.

Bank of Nova Scotia terminated its three DynamicEdge target-date portfolios this summer and merged those assets with regular funds-of-funds offerings with different risk profiles. They include the DynamicEdge Conservative, DynamicEdge Balanced and DynamicEdge Balanced Growth portfolios.

The bank would not comment on its decision, but its target-date assets totalled only about $25-million after five years. "I imagine the low level of assets in the funds prompted a business decision to merge them," said Mr. Bunce.

Dan Hallett, director of asset management at HighView Financial Group, said he would suggest investing in a target-date offering only as an alternative to a money market fund.

"Target date funds have more intuitive appeal than investment merit," he said. "It seems very simple, and that is the biggest benefit. But if you want to stick to this idea of convenience and one-decision making, I would go with a standard balanced fund. Your fees will be lower, too."

He prefers global balanced offerings such as the Mawer Balanced Fund and CI Signature High Income Fund. He also recommends the Steadyhand Founders Fund, which invests in stocks and bond funds and charges a fee of only 1.34 per cent.

Target-date funds can often shift into a conservative asset mix too quickly and stay there, Mr. Hallett said. The problem is that people investing for retirement need enough growth to support withdrawals.

Some target-date funds guarantee a payout at maturity, such as the highest month-end price reached or highest net asset value of the fund.

Mackenzie Financial Corp., which once had such an offering, was burned in the 2009 market crash when its Mackenzie Destination + funds were forced to shift assets into strip bonds to make good on their high-water mark. In 2012, these funds were terminated and merged into a money market fund.

Investors should avoid target-date funds with guarantees, Mr. Hallett said. "If people want their money guaranteed, then just buy a guaranteed investment certificated or a government bond."

David O'Leary, managing partner at Eden Valley Partners in Toronto, is not a fan of target-date funds.

"It's better than sitting in cash," he said. But even better would be investing in low-fee, passive-index ETFs and changing one's asset allocation every few years, he suggested.

A problem with target-date offerings is that they often invest in only the products of one firm, "but there is no fund company that does every asset class the best," Mr. O'Leary said. "You can do better by picking and choosing the best fund that different companies offer."

But fund companies, which make money from the fees charged as a percentage of assets, favour target-date products because they can earn a larger percentage of an investor's total assets for a longer period, he noted. "They are sticky assets."

Bank of Montreal's LifeStage Class target-date portfolios, which invest in BMO ETFs, charge more than 2 per cent, which is "quite high for an index portfolio," Mr. O'Leary said. There is no reason why the bank should charge more than the weighted management expense ratio [MER] of the underlying holdings, given that it is getting a bigger chunk of someone's investable assets, he suggested.

If you have a financial adviser who can do proper investment research, "you should definitely be doing better than target-date funds" in terms of returns, he said.

But some advisers, too, like them because "it makes their life easier."

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