TDF Assets: The Big Got Even Bigger in 2017

Fueled by the strong stock market performance in 2017, assets in mutual fund and CIT-based target-date solutions continued to see impressive growth, with passive strategies still gaining market share, while active managers also saw solid growth, according to a new report.

Assets in mutual fund and CIT-based target-date solutions grew by $390 billion, reaching $1.73 trillion at year-end 2017, up from $1.34 trillion at the end of 2016, according to Sway Research’s latest report, “The State of the Target-Date Market: 2018, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Glide Path Structures.”

Assets in CIT-based target-date products increased from $463 billion at the beginning of 2017 to $621 billion at the end of the year, a whopping 36% gain, while mutual fund solutions realized an impressive 26% growth rate, increasing from $883 billion to $1.11 trillion at year-end.

Not surprisingly, firms that offer both asset management and DC recordkeeping continue to dominate the target-date market, controlling 85% of assets at year-end 2017, up from 83% in 2015. Pure asset managers held 14% at the end of 2017, the same as in 2015.

The report further notes that TDFs with a single proprietary manager now hold 94 cents of every dollar in non-custom target-date solutions, up from 93 cents a year ago. Multi-manager solutions dropped from 4% of assets two years ago to just 3% in 2017.

Meanwhile, TDFs that invest in passively managed mutual funds and/or CITs gained market share in 2017, expanding to 51% of the total market with assets of $885 billion, up from 49% at the end of 2016.

Actively managed funds/CITs held $721 billion of assets (42%) at the end of 2017, down from 44% the previous year, but as the report notes, they still control the bulk of assets in TDFs (56% versus 42% for passive offerings). Passively managed solutions, however, continue to dominate CIT-based assets (68% versus 16% for active solutions).

Vanguard, not surprisingly, continues to dominate the passive market, managing 83% of the assets in passively managed TDFs and 57% in CIT-based TDFs. Fidelity, meanwhile, leads the pack on the actively managed side, as the firm controls a third of the assets in its Freedom Target-Date series. And T. Rowe Price dominates actively managed CIT-based TDFs, managing 52% of the assets in these vehicles.

The report also highlights the overall asset growth rate of American Funds. It explains that since the start of 2015, no top-10 provider has grown its target-date assets faster than American Funds, which has increased its AUM by more than 50% annually. After finishing 2014 with $25 billion of target-date assets, American Funds ended 2017 with $89 billion under management.

“While strong downward pressure on plan fees is driving greater usage of passive products, the asset growth and market share possessed by Fidelity, T. Rowe Price, American Funds and others prove that there is still considerable demand and opportunity for actively managed target-date solutions,” notes Chris Brown, founder and principal of Sway Research.

Sway’s annual study of the target-date market is based on a proprietary database of mutual fund and CIT target-date portfolio and asset data, which includes 128 different target-date series throughout 5,679 individual mutual fund share classes and CITs. Data is also gathered from target-date providers, plan intermediaries, public filings and marketing collateral, such as fact sheets, brochures and websites.

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