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Target-Date Contributions Continue Their Strong Post-Covid Pace

Target Date Funds

Target-date contributions continued the rebound in 2022.

Morningstar reported that net flows into target-date mutual funds totaled roughly $32.3 billion for the year, a nearly 35% jump from the $24 billion they received the previous year.  

While contributions fell well-short of their $69.9 billion peak in 2017, Morningstar’s Megan Pacholok called the increase promising.   

American Funds Target Date Retirement series collected the most flows in 2022, pushing Fidelity Freedom Index series from its No. 1 perch after consecutive years, with Vanguard Target Retirement series placing third.

Target-date funds’ inability to reach their 2017 high is in part blamed on the rise of collective investment trusts.

“Target-date CITs are only available through defined-contribution plans but have managed to gain market share primarily because of fees,” Pacholok wrote. “These offerings typically cost less than their mutual fund counterparts, and some providers are willing to negotiate fees even lower.”

In recent years, she added, a focus on fees has led many to CITs. At the end of 2021, about 45% of target-date assets were in CITs, up from less than 20% in 2014.

“Their footprint has significantly grown year to year as they take in the lion’s share of the net inflows. In 2021, CITs accounted for 86% of target-date strategy net inflows. Assets and flows into CITs are voluntarily reported, and usually on a lag compared with the more regulated mutual funds. So, year-end CIT data for the target-date universe is not yet available.”

CITs are on pace to overtake mutual funds overall as the most popular target-date vehicle in the coming years. In 2021, according to Morningstar’s 2022 Target-Date Strategy Landscape Report, net contribution to CITs outpaced mutual funds $146 billion to $24 billion and accounted for 86% of target-date strategy net inflows. These vehicles now make up 45% of total target-date strategy assets, up from 32% five years ago.

The report also found total assets in target-date strategies grew to a record $3.27 trillion at the end of 2021, nearly a 20% increase over the previous year.