Target-date fund (TDF) assets under management rose to $1.73 trillion by year-end 2017, up from $1.34 trillion a year earlier. According to Sway Research, the 2017 bull market is largely to thank for the significant amount of growth, “as net sales estimates suggest about two-thirds of the gain was due to appreciation.”
Sway’s report, titled “The State of the Target-Date Market: 2018, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Glide Path Structures,” identified Vanguard Group as a far and away leader within the TDF arena.
“The combination of low fees, strong returns and a top-5 DC recordkeeping platform continues to drive phenomenal growth for Vanguard’s Target-Date effort,” Chris Brown, founder and principal of Sway Research, said in a statement.
Vanguard’s assets account for $623 billion of the target-date market share, with $381 billion in mutual fund solutions and $242 billion in CIT-based solutions. Fidelity is its closest competitor in target-date mutual funds, controlling $227 billion in assets (21 percent of total assets in this vehicle). BlackRock came in second to Vanguard’s share of CIT-based target dates with $122 billion (20 percent of the asset share). Sway ranked T. Rowe Price the No. 3 provider in both categories, accounting for a 15 percent share and 10 percent share of assets, respectively.
Other trends of note in the Sway report include a steady increase in the market share of passively-managed target-date mutual funds and CITs. In 2017, these assets made up “51 percent of the total market. This was up from 49 percent at the end of 2016, and just 47 percent in 2015.”
In contrast, the share of actively managed target-date assets is on the decline, with 42 percent actively managed in 2017, down from 44 percent in 2016 and 46 percent in 2015.
Actively-managed products continue to make up a larger percentage of target-date mutual fund assets (56 percent compared to 42 percent passive); meanwhile, CIT-based target-date assets are predominantly being managed passively (68 percent compared to 16 percent active). Hybrid offerings account for a small percentage of each asset type (3 percent in mutual fund solutions and 16 percent in CITs).
“While strong downward pressure on plan fees is driving greater usage of passive products, the asset growth and market share possessed by Fidelity, T. Rowe Price, American Funds and others prove that there is still considerable demand and opportunity for actively-managed target-date solutions,” Brown concluded.