Assets in target-date mutual funds and CITs shattered the $2 trillion mark in 2019, reaching $2.29 trillion by year-end, after beginning the year with $1.77 trillion.
A new report from New Hampshire-based Sway Research notes the 30% rise in assets was mostly the result of a surge in stock prices, as the S&P 500 Index gained 30% for the year.
At year-end 2019, two in five dollars invested in a non-custom target-date solution was invested in a CIT-based solution, up from only 32% at the end of 2015.
Vanguard likely to break $1 trillion in 2020
The report, titled The State of the Target-Date Market: 2020, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Glide Path Structures, predicts that Vanguard will pass $1 trillion in target-date assets before 2020 comes to an end.
Vanguard managed $862 billion of target-date assets at the end of 2019, a rise of 33% from $649 billion in 2018, and up from just $356 billion at the end of 2015.
The index behemoth controlled 38% of assets in non-custom target-date solutions to start 2020, up from just 32% at the outset of 2016. Vanguard is the leading provider of both mutual fund- and CIT-based Target-Date series, and no competitor comes close.
Second place Fidelity controlled $310 billion, while T. Rowe Price is in the third position with $282 billion of Target-Date AUM.
Vanguard is also the dominant player in target-date solutions that invest in passively-managed underlying investments, controlling an astounding 68% of that market segment.
Vanguard is an example of a firm that offers both asset management and recordkeeping services to defined contribution plans. Firms that bundle asset management and DC plan recordkeeping are dominating the target-date market, and now control 85% of assets in non-custom target-date products, up from 83% in 2015.
On the flip side, it notes, asset share of pure asset managers is eroding, and is now just 14%, down from 15% in 2015.
Recordkeeping may not be a highly profitable business, but asset management still is (even if margins are declining), and the benefits of having both a major recordkeeping platform and an asset management arm are clearly visible in the target-date market.
Fees for active target-dates fall again
The fees paid by an average target-date investor are coming down.
On an asset-weighted basis, the average expense ratio of a mutual fund-based target-date series that invests in actively-managed underlying investments fell to 65 basis points (BPs) in 2019, down from 67 BPs in 2018, and 71 BPs in 2017.
The average asset-weighted expense ratio of mutual fund-based hybrid target-date series—those that invest in both active and passive underlying funds—dropped to 51 BPs from 55 BPs a year earlier.
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.
