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CITs Make Big TDF Push

Target Date Funds

Collective investment trust-based target-date solutions now control 45% of non-custom TDF assets, up from 35% in 2016, according to the latest analysis by Sway Research.

Eight out of ten of the largest TDF providers, including each of the top five, experienced greater asset growth from CIT-based target-date options than mutual fund target-date options in 2021, according to Sway.

The report, The State of the Target-date Market: 2022, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Glide Path Structures, notes that assets invested in target-date mutual funds and CITs reached $3.25 trillion at the end of 2021—a gain of 19% over year-end 2020—while CIT-based TDFs grew 27% to end 2021 with $1.45 trillion in assets. Assets in mutual fund-based solutions expanded 14% to finish the year at $1.80 trillion. The report notes that CIT-based target-date solutions typically offer lower expenses than mutual funds.

Big Get Bigger, But…

The report comments that Vanguard Group continues to dominate TDF assets, though the firm lost a “smidgen” of asset share in 2021 (from 36.9% to 36.6%). That said, the complex now commands $1.19 trillion of target-date AUM at year end, up from $1.0 trillion at the close of 2020. Second-place Fidelity Investments saw its target-date asset share climb from 14.0% to 14.3%, as its TDF assets reached $465 billion—growth that Sway says was “sparked” by its fast-growing passive target-date solutions.[i] Indeed, the report explains that the firm’s FIAM Index Target Date (CIT) and Fidelity Freedom® Index products were the fastest-growing target-date series (among those with more than $1 billion of AUM at the start of 2019) over the past three years. At the end of 2018, just 15% of Fidelity’s target-date assets were managed in solutions that invested in passively managed underlying funds, but this more than doubled to 33% by the end of 2021.

The report comments that an “intense focus on fees” has driven assets in TDFs that invest in low-cost, passively managed underlying portfolios to new highs in AUM and market share. It notes that passive TDFs now control $1.91 trillion of target-date AUM (58.9% asset share), compared with $1.06 trillion in solutions that invest in active underlying funds (32.6% asset share). 

Sway adds that there are currently 50 hybrid series on the market versus 40 active and 44 passive series. However, those hybrid products held just $278 billion of AUM at the end of 2021 (8.6% asset share).

ETFs Making Inroads

Exchange-traded funds (ETFs) are creeping into the target-date mix, according to the report. Products that have added ETFs in recent years include the $36 billion JPMorgan SmartRetirement® and $15 billion JPMorgan SmartRetirement® Blend series, the $5 billion USAA Target Retirement series, and the $648 million Franklin LifeSmart™ Retire Target series. 

According to Sway Research founder and principal Chris J. Brown, “The combination of unwavering downward pressure on fees and the rise in asset managers building and/or buying proprietary ETF lineups means the trend of ETFs being added to target-date allocations is likely only getting started. Building scale and launching CITs are not the only ways to lower expenses. Investing more of the assets in lower-cost portfolios, such as ETFs and index funds, offers another means to bring costs down.”

‘flex’ Able?

flexPATH Strategies, an affiliate of National Financial Partners Corp. (NFP), a distributor of retirement plans considered by many to be an aggregator in the DC plan sales and support marketplace, reached $28 billion of TDF assets across its 11 CIT-based target-date series, most of which invest all or a portion of assets in BlackRock index portfolios and/or iShares ETFs. This makes the firm the 12th largest provider of target-date solutions, despite launching its first TDF in 2015. Schwab presently holds the 10th position with $31 billion of target-date AUM, though at the end of 2019, Schwab controlled nearly twice as much TDF assets as flexPATH Strategies ($24 billion for Schwab to $13 billion for flexPATH). flexPATH’s success also demonstrates the potential for distributor-affiliated target-date solutions to garner assets in a field crowded with big name asset managers and recordkeepers, according to the report.

Sway’s annual in-depth study of the TDF market is based on a proprietary database of mutual fund and collective investment trust TDF portfolio and asset data, which includes 184 different target-date series spread across 7,500 individual mutual fund share classes and CITs. This data is harnessed to provide insights into shifts within the $3.3 trillion TDF market, including across products and providers, investment vehicles, underlying investments, management styles and glide paths.

[i] The report notes that the providers in the No. 3 to No. 6 positions also gained ground: T. Rowe Price saw its TDF assets rise 21% year-over-year to close 2021 with $382 billion of TDF AUM; BlackRock, which holds 99% of its TDF AUM in solutions with passive underlying investments, gained 25% to finish 2021 with $328 billion; and Capital Group/American Funds and SSgA (No. 5 & No. 6) each experienced asset growth of 27% to end 2021 with $248 billion and $122 billion of TDF AUM, respectively.