Does rebalancing the L (lifecycle) Funds every day cause the amount traded to increase?
The dollar amount of trading activity attributable to the L Funds is very small, especially compared to the dollar amount of trading activity attributable to frequent traders. For September and October 2007, the average trade in the I Fund was $224 million. The L Fund rebalancing accounts for $16 million, while frequent traders account for $142 million. (Frequent traders are participants who have traded in the I Fund eight or more times in the prior 60 days.) Therefore, the impact of the L Funds’ rebalancing is minimal.
The dollar amount of trading activity attributable to the L Funds, especially compared to the dollar amount of trading activity attributable to participants making frequent IFT requests, is very small. For example, in the I Fund, for September and October 2007, the average daily dollar amount attributable to the L Funds’ rebalancing accounted for just seven percent of the total daily trade, while the average daily dollar amount attributable to those making frequent IFTs (defined in this instance as participants who have traded in the I Fund eight or more times in the prior 60 days) was 63 percent. The impact of the L Funds’ rebalancing is demonstrably minimal. The Agency monitors the L Funds, as it does all of its funds; and, in the unlikely event that dollar volume of the L Funds’ rebalancing becomes costly, the Agency can take steps to reduce the frequency or amount of the rebalancings.
