Passive strategies continue to dominate not only the investing world but also the TDF market, driving prices down and leading to better performance, according to a recent Morningstar report. The average asset-weighted TDF fee dropped to 84 BPs at the end of 2013, down nearly 20% since 2008 and 8% since 2012. Taking an “if you can’t beat ‘em, join ‘em” strategy, Fidelity now has the lowest-cost TDF at 16 BPs, edging out Vanguard at 17 BPs. Even active managers are lowering fees.
Those touting open architecture TDFs may want to check the scorecard first, as proprietary funds do just as well when higher open architecture fees are taken into account. Those funds that have the freedom to make tactical, short-term decisions fared well, and the movement toward “to” funds (in which allocations are not changed at retirement) seems to be gaining momentum.
Meanwhile, the growth of TDFs continues, at 10.5% in 2013. TDF assets reached $650 billion at the end of Q1 2014, with the Big 3 (Fidelity, Vanguard and T. Rowe Price) maintaining an outsized 75% market share. T. Rowe Price gained $8.1 billion in 2013.
All this raises the $650 billion question: What strategies should active DCIO mutual fund providers without a TDF (a.k.a. QDIA) strategy or a stake in a record keeper be pursuing? If you have a good answer to this question, there’s a big job waiting for you at many DCIO firms.
