Little surprise, the popularity of target date funds in 401k plans continues to grow.
Known for keeping investors on track and invested in good markets and bad, assets in target-date mutual funds topped $880 billion by the end of 2016. That’s up from $763 billion at the end of 2015. This growth came from both investors putting more money in the funds and the positive returns 401k participants were able to realize.
Estimated net flows across all 12 target-date fund Morningstar Categories was $59 billion in 2016, according to Jeff Holt, fund analyst and head guru on target date funds with the Chicago-based Morningstar.
“That’s not far off their calendar-year high of $69 billion in 2015. The 2015, 2000-2010, and retirement categories saw net outflows in 2016, but that can be expected since funds in those three categories are meant for investors who have already reached retirement,” he said.
Vanguard remains the most popular target date funds and lengthened its lead with $37 billion in flows in 2016. American Funds’ flows came in a distant second with nearly $16 billion. Still, some managers, including Wells Fargo and Fidelity, saw outflows in the year.
“From a return respective, the average return for the target-date fund categories ranged from roughly 5 percent to 8 percent, with the more equity-heavy funds generally posting higher returns,” Holts added. “The Russell LifePoints series was one of the stronger-performing series in 2016, as a sizable position in small-cap stocks boosted its equity returns.”
On the flip side, he notes that the Manning & Napier Target series landed near the back of the pack due to negative stock picks and only a small position in strong-performing financial stocks.
“So while target-date funds remain popular for retirement investors, the experience can still vary significantly series to series,” Holt concluded.
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.
Yes not all target date funds are the same. It is important to evaluate the selection and monitoring of the target date using tools that will include the demographics of the plan and identifies what is features are important to be considered. In addition all TDF need to meet the DOL TIPs guidelines. Consider using the QDIA Blue Book tool. Contact support@qdia.com