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:
- After two consecutive quarters of positive returns, average target-date fund performance reversed course with an average loss of 0.3%. Longer-dated funds outperformed shorter-dated funds, on average, but the gap was narrow. Over the last 12 months the average target-date fund gained 2.1%.
- Individual asset class performance was mixed during both the second quarter and last 12 months. In the U.S., growth equities continued to outperform value equities with small growth stocks among the best performing asset classes for the last 12 months. While diversification into non-U.S. equities hurt the performance of target-date funds over the last 12 months, larger exposures to developed foreign equities helped fund performance in the second quarter of 2015. Among alternative asset classes, commodities were the worst performing asset class over the last year and REITs were the worst performing asset class in the second quarter.
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.”
SEe Also:
- Will Your Target-Date Fund Trigger a Fiduciary Lawsuit?
- Target-Date Contributions Grew Steadily in 2022
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
