Collective investment trusts (CITs) seem to be the dominant target-date vehicle this year, according to recent findings by Sway Research, a financial services company that analyzes the retirement market.
The study, “The State of the Target-Date Market: 2023—Examining Asset Trends Across Providers, Products, Vehicles, Management Styles and Glide Path Structures,” analyzed 130 target-date solutions, spread across more than 6,000 mutual fund share classes and CITs, finding that most of the series that managed to produce asset gains were CIT-based. In fact, the research finds that in 2022, most providers in the series experienced a double-digit drop in target-date assets.
This is a stark change, finds Sway, considering that mutual fund-based target-dates held 63% of target-date assets compared to just 37% for CITs back in 2017. By the start of 2023, mutual funds held 52% of target-date assets, rivalled to 48% of CITs.
The rate of CITs in TDFs continues to increase, finds Sway. Assets in CITs grew an average of 15% compared to 6% for mutual funds in a five-year basis. As a result, Sway predicts that assets in lower-cost CIT target-date funds (TDFs) will engulf mutual fund TDFs later in 2022.
The findings reflect an ongoing trend on CIT assets in retirement plans—in 2021, Sway projected that CITs would overtake mutual funds within the following four years. The popularity has been driven by small- and mid-size plans, who value the lower costs that CITs bring compared to pricier mutual funds.
Other findings include target-dates investing in passively managed underlying funds, which finished 2022 with a 60% share of target-date assets, up from 51% five years earlier. This is compared to 31% for active target-dates and 9% for hybrid solutions in 2022. Assets in passive TDFs increased at a rate of 14% annually, while active target-date suites grew 4% over the past five years.
Target-date expense ratios fell once again last year on an asset-weighted basis, to just nine basis points. Sway research finds that just five passive target-date series now possess a single-digital expense ratio for the lowest cost share class.
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