10 insights into the target-date fund market

Market Insights June 15, 2018 at 04:21 PM
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Strong investment returns and record flows of new money pushed total target-date fund assets over the $1 trillion threshold in 2017, according to Morningstar's annual Target-Date Fund Landscape report. The growth of TDFs since passage of the Pension Protection Act of 2006 is nothing short of "remarkable," write Morningstar analysts. Total assets were $1.11 trillion by the end of 2017, up from $880 billion in 2016, and $158 billion a decade ago. Strong market returns last year benefited TDF investors—average returns ranged from 8.8 percent to 21.3 percent, depending on fund vintages. But new flows of $70 billion were also a record, topping the previous high of $69 billion in 2015. An astonishing 95 percent of new flows were invested in passively managed TDFs, which Morningstar attributes, in part, to plan sponsors' demand for low-cost options. Asset flows to 2025 fund vintages were $13 billion, the most of any vintage, showing workers in their late 50s are stockpiling savings as the golden years draw closer, assuming a retirement age of 65. By contrast, 2060 vintages attracted a modest $2 billion in flows—younger workers make less money and have less to defer to TDFs, the study notes. Here are 10—of the many—insights into the target-date market from this year's report.