It turns out that many target date funds are juiced by high yield or "junk" bonds.
The issue is that target date funds (which presumably become more conservative over time as participants age) are riskier than what is generally perceived by consumers, regulators and financial advisors.
This higher level of risk is consistent with the higher than expected volatility and losses experienced by many target date funds during the financial crisis.
According to a recent Bloomberg article, up to 35 percent of target date funds hold some form of junk bonds in their fixed income holdings.
Vanguard is one company that consciously avoids the use of high yield bonds in its target date funds.
Source: Bloomberg
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