Subject: File No. S7-12-10
From: david p loftus
Affiliation: financial advisor ,patriot financial group

August 31, 2010

Most target date funds,as presently configured, do not seem to adhere to any semblamce of appropriate asset allocation in accordance with modern portfolio theory. As a whole they seem to utilize existing "house" funds managed by individual, and unrelated managers or teams of managers whose mission seems to focus on the success of their individual fund. Quite often that mission is at odds with the mission of the target date fund. Several target date funds have an abundance of large cap domestic equitiy funds in their top five holdings by percentage, ie. large cap growth,large cap blend, large cap global, etc. The American Funds, one of the more sought after fund families for a host of good reasons, offers a 2025 target date fund which include Capital Income Builder, Washington Mutual, Investment Co. of America, New Perspective and the American Balanced fund in their top six holdings by percent. Examining the equity holdings of each reveals a significant amount of redundancy and overlap creating the potential for significant appreciation during a large cap rally but also exposing the client to significant losses in a large cap collapse. The real Beta for the target date fund is understated (which creates the potential for the level of losses these funds incurred in 2008) and puts the unwitting client at greater risk. The fund pricing is shrouded as well. SInce the underlying funds do not reveal their expense ratios and since they don't waive those expenses, the client is paying for the weighted average of all theunderlying funds as well as the staed cost of the target date fund. In all cases with targetdate funds the client is paying well over $1.00 and in some cases over $1.50. per $100 of assets. Much too expensive for a "let it run" type fund. As important as the redundancy and costs are, the fact that the target date fund manager cannot really influence the decisions of the sub account managers, whose investment decisions may be in conflict with the target date fund,leads to a fund that is essentially undirected. As a group they need to be redesigned and reengineered or they will continue to be a high priced ,ineffective, investment model.