AARP has announced that it will liquidate its four-member line-up of mutual funds after less than five years in existence. Amid pressure from other mutual fund shops, the group is expected to terminate its funds around Oct. 1 of this year. While the AARP fund offerings certainly didn't amass billions of dollars in assets, shareholders who did buy in will now be forced to find other fund alternatives. Fortunately, there are plenty of reasonable options that these folks may want to consider.
AARP Aggressive
Target Asset Allocation: 60/20/20 U.S. Stocks/Foreign Stocks/Bonds
If you owned this fund, you may want to consider investing in Vanguard Wellington (VWELX). Wellington typically invests 60-70% of assets in domestic and foreign stocks, with the remainder in investment grade corporate bonds and some U.S. Treasuries.
The fund places a high priority on producing current income, so dividend-paying names are a staple here. Stocks like AT&T (NYSE: T) with its 6.8% dividend yield and Chevron (NYSE: CVX) with a 4% yield are favorites in the portfolio. With both stocks trading at valuations significantly below the market, they are prime examples of the undervalued, high-yielding stocks management likes to hang its hat on.
Performance has been first-rate here, with the fund posting a 6% annualized gain over the past decade. That showing puts it ahead of 98% of its peers in the Morningstar moderate allocation group. You need $10,000 to get in the doors here, but if you can pony up the cash, Vanguard Wellington should continue to serve its investors well.
AARP Moderate
Target Asset Allocation: 40/15/45 U.S. Stocks/Foreign Stocks/Bonds
Owners of this soon-to-be-liquidated fund might want to look at American Funds Income Fund of America (AMECX). Like other funds in the American Funds line-up, this offering is run by a team of portfolio counselors with a long history at the firm. Income Fund of America has typically allocated 55%-60% of its assets to stocks around the world with the remainder held in bonds and cash.
According to management, the downturn opened up opportunities to invest in many high-yielding stocks that were in industries that the fund does not typically invest in, such as industrials. However, names like Emerson Electric (NYSE: EMR) and Weyerhaeuser (NYSE: WY) are now featured as companies management believes are the strongest players in their respective industries and that should be able to withstand market difficulties and deliver value to shareholders.
Income Fund of America is a great fund, but it does carry a front-end load. So only buy the fund if you can avoid paying this fee, which you can most likely do if it's an option within your 401(k) or other qualified retirement plan.
AARP Conservative
Target Asset Allocation: 22.5/7.5/70 U.S. Stocks/Foreign Stocks/Bonds
If you're looking for more exposure to capital-protecting bonds than stocks, consider Vanguard Wellesley Income (VWINX). This fund, run by the investing gurus at Wellington Management, invests 60-65% of assets in high-quality corporate and government bonds, and 35-40% in dividend-paying stocks. Management has found attractive prices and future prospects in large drug makers Pfizer (NYSE: PFE) and Merck (NYSE: MRK), both of which boast a dividend yield in excess of 4% and trade at significant earnings-multiple discounts to the overall market's valuation.
Wellesley Income carries one of the best track records for its peer group, besting 98% of its competition over the past 15 years with a 8.1% annualized return. The management duo currently in charge is a bit newer than that, but both have been managing assets at Wellington for more than a decade. Conservative investors should find much to like here.
AARP Income
Target Asset Allocation: 0/0/100 U.S. Stocks/Foreign Stocks/Bonds & Other Fixed-Income
If you're already in retirement and are looking for a fund that focuses exclusively on fixed income instruments, Harbor Bond (HABDX) may be just the ticket. This first-rate bond fund is sub-advised by none other than bond guru Bill Gross of Pimco fame. The fund outranks 98% of all intermediate-term bonds over the past decade and a half, thanks to Gross's timely macroeconomic calls. In that time, the fund has posted a 7.6% annualized gain, compared to 6.5% for the Barclays Aggregate Bond Index. Asset allocation here is a mix of corporate, government, and mortgage bonds, with some foreign issues thrown in for flavor. With a low $1,000 minimum and 0.60% price tag, this fund is one of the best in the fixed income space.
It's always a bit of a logistical annoyance when a mutual fund you own liquidates, but when there are other solid, low-cost options out there just waiting to give your money a home, you may actually end up better off in the long-run.
