According to custodian Northern Trust, TDFs were the largest gainer of flows into DC plans last year, at the expense of fixed income. Based on nearly 100 plans with 1.7 million participants and $225 billion of assets, the 2013 Northern Trust DC Tracker showed that 14.6% of assets flowed into TDFs, which was down slightly from the previous year.
Meanwhile, fixed income funds showed a decline of 11%. Small and mid-cap equities rebounded a bit, to 4.4% and 6.3% respectively after declining in 2012 — although 2013 flows are nothing to write home about.
TDFs continue to grow at an astounding rate, according to ICI, growing 28% in 2013 and almost tripling since 2008. Much of their success is based on auto-enrollment and QDIAs, along with the simplicity of the investment.
So where is the silver lining for long-only, actively managed equity mutual funds without a viable TDF? Some point to sub-advisory work in sleeves of open architecture TDFs (although most of the top TDFs are proprietary, including American Century — which is the only one in the top 10 that does not enjoy the benefit of owning a record keeper). Others point to custom funds, especially those run by larger DC teams that want a bigger piece of the pie. Regardless, the rush to packaged TDFs, which have $618 billion in assets, continues with no slowdown in sight.
