Target-Date Funds Win, Target-Risk Funds Lose

Back-to-back reports from Morningstar find good news for target-date funds, bad news for target-risk funds. The Chicago based research firm reports that in the second quarter, target date funds experienced $19.3 billion in positive inflows. The growth rate of target-date funds continues to slow but remains positive, according to the report, as plan sponsors move to collective trusts and custom solutions. Total assets surpassed $760 billion at the end of the quarter. Additional findings include:

Conversely, target-risk funds struggled with aggregate outflows of $2.9 billion during the quarter. Morningstar notes that 455 of the 581 target risk funds it currently track (or 78%) had negative results. “The worst losses were among conservative and moderate, bond-centric funds,” the firm finds. “Long in coming, interest rates increased meaningfully last quarter and interest rate sensitive asset classes were negatively affected. Long term bonds had their fourth worst quarter since the Barclays US Govt/Credit Long Index was incepted in 1973, returning -7.6%. The largest equity markets produced very low but positive results, leading most target risk funds with over 80% equity to end in positive territory.”

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