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Fund name: AARP Aggressive, Moderate, Conservative (no ticker available)

Objective: Each fund is comprised of shares in three indexes (domestic stock, foreign stock, bonds).  Their objectives are, respectively, “growth of capital and some current income,” “a balance of growth of capital and current income,” and “primarily current income, with some growth of capital.”

Adviser: SSgA Fund Management, a subsidiary of State Street Global Advisors (SSgA). SSgA is a massive player in the world financial markets with nearly $1.5 trillion under management.  The subsidiary company manages $100 billion.

Manager(s): Team-managed by one AARP Financial employee and three SSgA portfolio managers from their Global Asset Allocation team. 

Opening date: Inception is listed as Dec. 30 2005 but the funds didn’t trade until January 18, 2006.

Minimum investment: $100 for both regular accounts, IRAs and Coverdell Education Savings Accounts.  The minimum is waived for investors establishing an automatic monthly investment of at least $25. 

Expense ratio: 0.50% after expense waivers; 0.71% before waiver.  The waiver is in effect under November, 2007.  The expenses do include a 12(b)1 marketing fee of 0.20%.

Comments:  AARP has long licensed its name to a series of (often mediocre) Scudder funds.  Scudder provided access to its funds with lowered minimums $1,000) for those investing through the AARP brand.  Scudder has gone through a series of convolutions and buy-outs.  They’re now part of DWS Financial.  While the Scudder name has disappeared and the no-load Scudder funds have closed, the low-minimum, no-load AARP share class lives on.  There are currently about three dozen DWS funds for whom the AARP share class is available. 

But these aren’t them.  AARP launched a financial subsidiary which offers just three funds.  All are “balanced” or “hybrid” portfolios, all are based on indexing rather than active management, and all are more conservative than their names imply.  And they offer dramatically lower minimums: $100 for a one-time purchase, just $25 if you commit to a monthly investment plan.

I’ll note, in passing, that the AARP Funds folks I talked to come across as defensive and just a tiny bit paranoid.  When I asked what I took to be a harmless questions (“could you tell me how much is invested in each fund”), I got a curt and clipped answer: "we are not revealing that.  It is propriety information and that's all we are going to say on that topic."  Uh-huh.  When I asked why assets under management were a secret, I got the same response verbatim.

And, apparently, no one has asked how they achieve their index exposure (through purchase of stocks, an ETF, futures contracts, or whatever).  The question provoked a nervous “uh. . . derivatives, mostly . . .” response.

That said, these are still awfully attractive investment options for folks who are starting out and who don’t want to spend a lot of time on their portfolios.  There are a couple things to keep in mind when you evaluate the funds.

First, the difference between them is simply target allocations.  Otherwise the expenses, management and minimums are the same.

 

 

U.S. stocks

International stocks

Bonds

Aggressive

60%

15

25

Moderate

40

10

50

Conservative

20

5

75

 

Second, these really are conservatively positioned.  AARP’s Aggressive fund has about the same asset allocation as T. Rowe Price’s Retirement 2015 or Fidelity’s Freedom 2015.  Viewed from a different perspective, Fidelity’s Asset Manager Aggressive has 75% stocks and only 5% bonds.  

Bottom line: these are certainly not the cheapest index funds around (Vanguard Balanced and Fidelity Four-in-One each charge 0.20% against AARP’s 0.50%), but they are probably the best option for small investors (the Fidelity minimum is $10,000, the Vanguard minimum is $3000 plus a $10/year annoyance fee until your account reaches $10,000) seeking the simplicity of a relatively conservative, one-stop, passive option.

Company link: AARPfunds.com.

For information about the AARP share class of DWS funds: DWS funds (AARP shares)

May 1, 2006