T.D.F.-CITs Are Also Getting Into Private-equity/Credit & CryptosThe original premise of CITs (collective investment trusts) was good - they are unlisted, loosely regulated by the banking regulator OCC (not the securities regulator SEC), & have lower ERs. CITs are available in many workplace retirement plans (401k/403b).
TDFs (target-date funds) with glide-path allocations exploded after they were allowed as default options in workplace retirement plans.
The next step was T.D.F.-CITs, supposedly the ultimate in simplicity. Now, 52% of the TDFs are T.D.F.-CITs; they overtook mutual fund TDFs (T.D.F.-OEFs) in 06/2024.
There have been several recent rules that allow new things within the T.D.F. structure - alternatives such as private-equity/credit & cryptos within CITs, & lifetime income options.
But T.D.F.-OEFs & T.D.F.-CITs are different animals. T.D.F.-CITs were supposed to be very simple funds for the general public.
Those simple aspects of T.D.F.-CITs may now be abused.
Loose CIT regulations mean that the limits & scrutiny that SEC imposes on alternatives in listed funds don't apply to T.D.F.-CITs. They may also not fully disclose the ERs of the underlying funds, so some T.D.F.-CIT ERs maybe misleading.
By claiming to offer expensive alternatives within T.D.F.-CITs, their low ERs may go out of the window. The CIT sponsors will make yeah-but (yabut) justifications for high ERs - i.e. yes, the ERs are low, but alternatives are expensive.
Keep an eye on changes your T.D.F.-CIT may be making - in its name or objectives. Know what your T.D.F.-CIT is getting into or has - you may be surprised.
WSJ
https://www.wsj.com/finance/investing/do-you-really-know-whats-inside-your-401-k-c480ec9cMSN
https://www.msn.com/en-us/money/markets/do-you-really-know-what-s-inside-your-401-k/ar-AA1RLP3d
Comments
Retirement savers may not benefit financially although it may be lucrative for firms
offering these investment products.