Passive Passion Pushes TDF Surge

A strong demand for passively managed target-date funds resulted in a sizable lead compared with assets in active products, according to new research.

In fact, target-date assets in passively managed mutual fund and collective investment trust (CIT)-based target-date portfolios totaled $653 billion at the end of 2016, well ahead of actively managed portfolios, which held $594 billion and had a billion-dollar edge at the end of 2015 ($524 billion to $523 billion), according to Sway Research’s report, “The State of the Target-Date Market: 2017, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Key Features.”

Assets in target-date portfolios expanded 20% in 2016, growing from $1.11 trillion at the end of 2015 to $1.33 trillion last year. Assets in CIT-based target-date portfolios rose from $355 billion at the end of 2015 to $458 billion in 2016. This growth rate of 29% was nearly twice the pace of growth in mutual fund target-date assets, which swelled from $760 billion to $878 billion year-over-year — a nothing-to-sneeze-at growth rate of 16%.

Not surprisingly, Vanguard Group benefited from the trend toward passive, expanding assets under management in target-date portfolios by $96 billion in 2016, as assets in the firm’s target-date mutual funds and CITs swelled to $450 billion, according to the report.

Vanguard was not the only fund company to expand its target-date asset base by $10 billion or more in 2016; T. Rowe Price increased target-date assets by $24 billion in 2016 — the most of any firm with a focus on actively managed TDFs, followed by BlackRock, which added $16 billion of target-date assets.

Among the industry’s largest 15 TDF providers, American Funds experienced the largest year-over-year expansion of target-date assets on a percentage basis (40%), adding $14 billion to its Target-Date Retirement mutual fund series. Fidelity Investments, which the report says has seen its share of target-date assets erode in recent years, also saw assets grow by $14 billion to break $200 billion, which is second only to Vanguard in total target-date mutual fund and CIT assets.

Also in the $10 billion+ club were J.P. Morgan Asset Management (which grew assets in its target-date mutual funds and CITs by $13 billion, breaking the $70 billion mark in total target-date AUM by the end of 2016) and Principal Global Investors, which grew its target-date assets from $44 billion to $54 billion.

Sway’s annual in-depth study of the target-date market is based on a proprietary database of mutual fund and collective trust target-date portfolio and asset data, which includes 128 different target-date series spread across 5,029 individual mutual fund share classes and CITs. The database includes assets as of year-end 2013 through 2016 for mutual fund target-dates, and year-end 2015 and 2016 for CIT target-dates.

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