Morningstar recently published their review of the target date product marketplace through 2017. Since 2008, target date mutual fund assets have grown from approximately $158 million to over $1.1 trillion as of Dec. 31, 2017. In 2017, net inflows to target date funds topped $70 billion, with over 95% of flows directed to passive mutual fund series. While passive options are receiving the larger share of inflows, largely due to their lower expenses, active target date series still have the most assets.
As of Dec. 31, the top three target date mutual fund managers by assets were Vanguard ($381.5 billion), Fidelity ($227.5 billion), and T. Rowe Price ($165.5 billion); American Funds and JPMorgan round out the top five. The difference in target date assets under management is stark – Vanguard, Fidelity, and T. Rowe Price dominate the market with a combined market share of 69.8%. By way of contrast, American Funds and JPMorgan’s combined market share is less than T. Rowe Price alone. Most of Morningstar’s data is focused on mutual funds, but several managers offer their target date series in collective investment trusts (CITs) in addition to mutual funds. When you consider the CIT assets reported to Morningstar, Vanguard’s target date assets jump to over $622 billion. Fidelity & T. Rowe Price maintain their second and third positions with more modest increases in total assets and BlackRock jumps from ninth to fourth place with $139.7 billion.
The trend to lower target date fund expenses continued in 2017. Of 58 target date mutual fund series tracked by Morningstar, 37 had reductions in their weighted average fund expenses.
Another continuing trend in target date funds has been the move by some managers to offer multiple target date products. Fidelity, TIAA-CREF, JPMorgan, and Principal are among a select group of active managers who have expanded their offerings in recent years by adding hybrid (active-passive) and passive target date strategies. A smaller group of managers including T. Rowe Price, Wells Fargo, and Great-West have added target date strategies that utilize a different glidepath as compared to their flagship series.
As plan sponsors face increasing pressures to monitor investment costs, it is not surprising that passive target date series are seeing such strong asset growth. However, active managers are not unaware of expenses, and many are continuing to cut fund expenses. As always, plan sponsors should consider multiple factors in selecting and monitoring target date products including glidepath, asset allocation, expenses, and performance.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.
Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.