1. FEES STILL COMING DOWN -- The average asset-weighted expense ratio for all TDFs fell again in 2017, to 66 basis points. Five years ago the average cost for a fund was 91 basis points. Competitive pressure has encouraged more managers of actively managed funds to blend underlying passive funds into TDFs, and spawned new funds that combine active and passive strategies. (Photo: Shutterstock)
2. ASSET GAP BETWEEN ACTIVE AND PASSIVE STRATEGIES IS CLOSING -- Morningstar defines a fund as passively managed if at least 80 percent of assets are managed by underlying index funds. Actively managed funds account for 58 percent of all TDF mutual funds. But that majority share is falling, due to demand for passive strategies. The 42 percent of the market claimed by passive funds is up from 24 percent in 2008. (Photo: Shutterstock)
3. LOW-COST FUNDS DOMINATE NEW FLOWS -- Funds with fees classified as low by Morningstar saw $79 billion in new flows in 2017, and funds with expense ratios classified as below average saw $14 billion in flows. By comparison, funds classified as having an average cost saw $11 billion in outflows, and funds with above average and high costs lost $7 billion and $4 billion, respectively. (Photo: Shutterstock)
4. VANGUARD EXTENDS ITS DOMINANCE WITH INDEXED SERIES -- Vanguard’s passively managed TDFs claimed an astonishing $50.6 billion in new flows, bringing its industry-leading total assets in the funds to $381 billion. Assets in TDFs account for 11 percent of the total assets managed by the firm. Vanguard accounts for 34 percent of all assets invested in TDFs. (Photo: Shutterstock)
5. BIG 3 STILL DOMINATE, BUT THEIR SHARE OF MARKET IS FALLING -- Vanguard, Fidelity, and T. Rowe Price—commonly called the “Big Three” of the target-date market—collectively account for 70 percent of assets in the funds. But that dominance is waning a bit. Five years ago the Big Three accounted for 75 percent of the market. (Photo: Shutterstock)


6. FIDELITY STAUNCHES THE HEMORRHAGING -- Once the top banana of the TDF market, Fidelity’s funds began experiencing considerable outflows in 2014. The firm accounted for a market-leading 32.7 percent of assets in 2012. Outflows peaked in 2014, at $7.9 billion. Its flagship Freedom Fund target-date series has been revamped with new management strategies that have powered improved returns, Morningstar says. Fidelity remains the second largest provider, with $228 billion in TDF assets. (Photo: Shutterstock)
7. WHILE MARKET GROWS, SOME FIRMS LOSE GROUND -- Of the 41 providers tracked by Morningstar, 17 saw negative net flows, with T. Rowe Price experiencing the largest by assets at $9.5 billion. The report notes that the firm has said the outflows are attributable to clients transitioning from mutual fund TDFs to collective investment trust versions of TDFs, which are not tracked in Morningstar’s report. Wells Fargo saw $4.7 billion in outflows, marking the third year in a row the firm has lost ground. In total, four firms saw outflows of more than $1 billion. (Photo: Shutterstock)
8. SEPARATING ORGANIC GROWTH FROM MARKET GAINS -- Only four of the 10 largest providers— Vanguard, American Funds, TIAA Investments, and BlackRock—grew market share in 2017. Of the 10 largest TDF providers, five had negative organic growth rates in 2017, meaning their overall asset growth came from appreciating market values, and not from new flows from investors. American Funds and BlackRock saw the largest rates of organic growth, at 45 percent and 39.1 percent respectively. (Photo: Shutterstock)
9. IN SPITE OF PASSIVE'S DOMINANCE, GROWTH SEEN WITH SELECT ACTIVE MANAGERS -- Active strategies deployed by American Funds and JP Morgan saw impressive gains despite the larger trend of flows to those using passive strategies. American Funds, the fourth largest TDF provider, saw $24.1 billion in new flows, despite holding more than 25 percent of assets in underlying actively managed funds. JP Morgan, the fifth largest provider, saw $673 million in new flows. Morningstar attributed the success to the firms’ ability to offer active strategies at competitive prices. (Photo: Shutterstock)
10. MORE FIRMS OFFERING MULTIPLE TDF OPTIONS -- According to Morningstar, 12 firms now offer more than one TDF series in an attempt to meet investors’ preferences. When firms do offer multiple options, the least-expensive series tend to attract more assets. “Firms with multiple target-date series often offer a version that invests predominantly in index funds as an alternative to one that holds actively managed underlying funds,” the report says. BlackRock, Fidelity, John Hancock, Schwab, TIAA-CREF, and Voya each saw the highest estimated net flows in their passive series in 2017. BlackRock, John Hancock, and Voya, which each offer three series, only experienced gains in their passively managed funds. (Photo: Shutterstock)


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.