On the heels of releasing its inaugural Retirement Plan Landscape Report earlier this month, Morningstar today published its annual Target-Date Strategy Landscape Report, which found that total assets in target-date strategies grew to a record $3.27 trillion at the end of 2021, nearly a 20% increase over the previous year.
“Plan sponsors are attracted to the lower costs of [CITs], and we expect their growing popularity to persist.”
Megan Pacholok, Morningstar
“Assets in target-date strategies reached a record high in 2021 as investors poured net contributions of $170 billion into the space,” said Megan Pacholok, manager research analyst at Morningstar. “We are also seeing the remarkable advance of collective investment trusts, which made up roughly 86% of 2021’s net inflows. Plan sponsors are attracted to the lower costs of these vehicles, and we expect their growing popularity to persist.”
The 2022 report examines the growing trend of collective investment trusts (CITs) as plan sponsors’ preferred target-date vehicle, how fees continue to be a key driver in target-date selection, and primary differences between “to” versus “through” glide paths.
The Target-Date Strategy Landscape Report is available here. Key findings from the report include:
- CITs are on pace to overtake mutual funds as the most popular target-date vehicle in the coming years. In 2021, net contribution to CITs outpaced mutual funds $146 billion to $24 billion and accounted for 86% of target-date strategy net inflows. These vehicles now make up 45% of total target-date strategy assets, up from 32% five years ago.
- Fees continue to influence target-date fund flows. The cheapest quintile of target-date share classes amassed$59 billion in 2021, up from $41 billion in 2020. Collectively, the three more-expensive quintiles had outflows of more than $38 billion.
- Vanguard Target Retirement collected the most net new money after slipping from the top spot last year for the first time since 2008. It accumulated more than $55 billion of net inflows in 2021, with Fidelity Freedom Index collecting the second most with approximately $45 billion. Overall, the industry remains top heavy as the largest five providers control roughly 79% of target-date market share.
- Target-date managers have become more comfortable with higher equity stakes over the last decade. In 2021, portfolios 20 years to retirement had a median equity weighting of 82%, roughly one-fifth larger than 10 years ago. Firms’ preference for “through” retirement glide paths over “to” retirement is one reason for the shift toward higher equity weightings, as “through” retirement glide paths’ gradual de-risking after the target-retirement date allows for more equity risk during savers’ working years.
Morningstar today published a Fund Spy article that reviews the latest ratings for target-date fund series that Morningstar covers.
Morningstar Target-Date Fund Series Reports are designed to help financial advisors, plan sponsors, consultants, individual investors, and other interested fiduciaries make informed decisions when selecting a series of target-date funds.
SEE ALSO:
• 5 Key DC Trends from New Morningstar Retirement Report
• CITs On Pace to Overtake Mutual Funds in DC Plans by 2025