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 401(k) Specialist and 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. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.