Morningstar has released a comprehensive and far-reaching review and analysis of the TDF market that includes results from Q1 2013. Some of the findings are not surprising, including the continued popularity of the investment class — which now tops $500 million — and the dominance of the Big 3 (Fidelity, Vanguard and T Rowe Price), which account for three-quarters of the market. Here are some highlights from the 60-plus-page report:
• Fees continue to fall, dropping from 104 BPs in 2008, to 99 in 2011, and 91 in 2012.
• TDFs using passive building blocks took in more money than actives for the first time, and should overtake them by 2019. Prices are less than half for passive strategies, with some at 18-19 BPs.
• Most glide paths yielded similar results for people until age 85, at which point more conservative strategies did not fare well.
• International equities increased their exposure in TDFs, from 24% in 2005 to 36% in 2012. International bonds also grew.
• While TDF growth rates are still better than the broader mutual fund class, the rates are slower due to their increasing size and greater flows into CITs and customized investments.
• Beyond the Big 5, the fastest-growth funds with +$1 billion included:
— Great West
— JP Morgan
— John Hancock
— American Century
— TIAA-CREF
• The fastest growers among firms with <$1 billion:
— Allianz
— Pimco
— Invesco
— MFS
• Six funds experienced outflows and four liquidated.
The trend is still heavily weighted toward proprietary offerings, with most of the leaders owning a significant record keeping platform. Will advisors and plan sponsors start choosing their TDFs first, as the asset class becomes more dominant and record keepers try to push their proprietary offerings?
