TIAA-CREF Lifestyle Conservative Fund, August 2015

By | August 3, 2015

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Objective and strategy The TIAA-CREF Lifestyle Conservative Fund (MUTF: TSCLX ) seeks long-term total return, consisting of both current income and capital appreciation. It is a “fund of funds” that invests in the low-cost Institutional Class shares of other TIAA-CREF funds. It is designed for investors targeting a conservative risk-return profile. In general, 40% of the fund’s assets are invested in stocks and 60% in bonds. The managers can change those allocations by as much as 10% up or down depending upon current market conditions and outlook. Adviser TIAA-CREF. It stands for “Teachers Insurance and Annuity Association – College Retirement Equities Fund,” which tells you a lot about them. They were founded in 1918 to help secure the retirements of college teachers; their original backers were Andrew Carnegie and his Carnegie Foundation. Their mission eventually broadened to serving people who work in the academic, research, medical and cultural fields. More recently, their funds became available to the general public. TIAA-CREF manages almost $900 billion dollars for its five million investors. Because so much of their business is with highly-educated professionals concerned about their retirement, TIAA-CREF focuses on fundamentally sound strategies with little trendiness or flash and on keeping expenses as lower as possible. 70% of their investment products have earned four- or five-star ratings from Morningstar and the company is consistently rated as one of America’s best employers. Manager John Cunniff and Hans Erickson, who have managed the fund since its inception. Management’s stake in the fund We generally look for funds where the managers have placed a lot of their own money to work beside yours. Mssrs. Cunniff and Erickson each have $500,001 – $1,000,000 invested in the fund, which qualifies as “a lot.” Opening date December 9, 2011. Many of the funds in which the managers invest are much older than that. Minimum investment $2,500. That is reduced to $100 if you sign up for an automatic investing plan. Expense ratio 0.87% on $115 million in assets, as of July 2015. That’s about average for funds of this type. Comments Lifestyle Conservative offers many of the same attractions as the Vanguard Star Fund (MUTF: VGSTX ) but does so with a more conservative asset allocation. Here are three arguments on its behalf. First, the fund invests in a way that is broadly diversified and pretty conservative . 40% of its money is invested in stocks, 40% in high-quality bonds and the last 20% in short-term bonds. That’s admirably cautious. They then take measured risks within their various investments (for example, their stock portfolio is more tilted toward international stocks and emerging markets stocks than are their peers) to help boost returns. Second, TIAA-CREF is very good. There are two sorts of funds, those which simply buy all of the stocks or bonds in a particular index without trying to judge whether they’re good or bad (these are called “passive” funds) and those whose managers try to invest in only the best stocks or bonds (called “active” funds). TSCLX invests in a mix of the two with active funds receiving about 90% of the cash. CREF’s management teams tend to be pretty stable (the average tenure is close to nine years); most managers handle just one or two funds and most invest heavily (north of $100,000 per manager per fund) in their funds. CREF and its funds operate with far lower expenses than its peers, on average, 0.43% per year for funds investing primarily in U.S. stocks. Even their most expensive fund charges 40% less than their industry peers. Every dollar not spent on running the fund is a dollar that remains in your account. Third, Lifestyle Conservative is a very easy way to build a very well-diversified portfolio. Lifestyle Conservative builds its portfolio around 15 actively-managed and three passively-managed TIAA-CREF funds. They are: Which invests in Large-Cap Growth Large companies in new and emerging areas of the economy that appear poised for growth. Large-Cap Value Large companies, mostly in the U.S., whose stock is undervalued based on an evaluation of their potential worth. Enhanced Large-Cap Growth Index Quantitative models try to help it put extra money into the most attractive stocks in the U.S. Large Cap Growth index; it tries to sort of “tilt” a traditional index. Enhanced Large-Cap Value Index Quantitative models try to help it put extra money into the most attractive stocks in the U.S. Large Cap Value index. Mid-Cap Growth Medium-sized U.S. companies with strong earnings growth. Mid-Cap Value Temporarily undervalued mid-sized companies. Growth & Income Large U.S. companies which are paying healthy dividends or buying back their stock. Small-Cap Equity smaller domestic companies across a wide range of sectors, growth rates and valuations. International Equity Stocks of stable and growing non-U.S. companies. International Opportunities Stocks of foreign firms that might have great potential but a limited track record. Emerging Markets Equity Stocks of firms located in emerging markets such as India and China. Enhanced International Equity Index Quantitative models try to help it put extra money into the most attractive stocks in the International Equity index. Global Natural Resources Firms around the world involved in energy, metals, agriculture and other commodities. Bond High quality U.S. bonds. Bond Plus 70% investment grade bonds and 30% spicier fare, such as emerging markets bonds or high-yield debt. High-Yield Mostly somewhat riskier, higher-yielding bonds for U.S. and foreign corporations. Short-Term Bond Short-term, investment grade U.S. government and corporate bonds. Money Market Ultra-safe, lower-returning CDs and such. Bottom Line Lifestyle Conservative has been a fine performer since launch. It has returned 7.5% annually over the past three years. That’s about 2% per year better than average, which places it in the top 20% of all conservative hybrid funds. While it trails more venturesome funds such as Vanguard STAR in good markets, it holds up substantially better than they do in falling markets. That combination led Morningstar to award it four stars, their second-highest rating. Scalper1 News

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