Lifecycle Funds Grew 8% in Q4 to $842B

Assets in target-date mutual funds remain highly concentrated among five firms

Target-date and target-risk products grew 5% in 2011 and 8% in the fourth quarter, according to New York-based Strategic Insight. They had a total of $842 billion in assets as of Dec. 31, the group said Wednesday, with target-risk products accounting for $460 billion, or 55%, of assets.

This puts the lifecycle group’s asset growth roughly in line with the uptick of the Dow Jones Industrial Average last year–5.5%. Lifecycle products (including both mutual fund and variable annuities) had net inflows of $11.6 billion in the fourth quarter of 2011.

“Target-date funds continued to grow faster than target-risk funds in the fourth quarter,” said Bridget Bearden, head of lifecycle research at Strategic Insight, in a statement. “Target-risk funds saw net outflows in the last two quarters of 2011, ending the year with modest net outflows.”

Target-date products are those that move into a more conservative portfolio over a specific time horizon, while target-risk products keep a set portfolio style and asset allocation (i.e., aggressive, conservation, etc.)

Mutual funds made up some two-thirds (or 68%) of overall lifecycle assets, and attracted $7.2 billion during the fourth quarter. The remaining assets (38%) represented variable annuities, which drew $4.5 billion.

Target-date mutual funds returned 6.85% on a weighted average basis over the quarter, and netted $9.1 billion in flows. Target-risk mutual funds returned 6.23%, but they experienced their second consecutive quarter of net outflows, losing $1.9 billion.

Asset Concentration

Target-date mutual fund assets remained concentrated among the largest fund managers, says Strategic Insight: the five-largest target date mutual fund providers represented 84% of the market in 2011.

Managers leading the quarterly net intake for target-date mutual funds included Vanguard, Fidelity, T. Rowe Price, TIAA-CREF, and JPMorgan Funds. In total, these five firms drew in $8.0 billion of net new assets.

In the target-risk mutual fund field, the largest-five managers represented 44% of the $205 billion market. Top quarterly-flow leaders included Fidelity, MFS, Manning & Napier, Franklin Templeton, and DFA.

Annuity Products

Variable-annuity products accounted for $266 billion of lifecycle assets, with nearly all (96%) of the assets in target-risk strategies. The $255 billion variable target-risk market attracted $4.0 billion of net flows, while posting net returns of 5.68% during the fourth quarter.Variable target date assets grew 9.6% over the quarter to $11 billion.

Despite fewer than 10 firms active in the variable target-date space, assets have grown by 31% on a year-over-year basis, according to the research firm, driven by $1.4 billion of quarterly net new flows into the Prudential target-date series.

The largest five variable target-date managers include ING, Prudential, Great West, Fidelity, and Lincoln.

Some two-thirds of variable target-risk assets reside among the five-largest players: Columbia, AXA Equitable, Prudential, John Hancock, and MetLife. These five firms combined netted $2.4 billion during the fourth quarter.

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