Despite some detractors (the Senate Special Committee on Aging, the Depart-ment of Labor and the SEC to name a few), sales of target-date funds are on their way back up. In a recent study, Morningstar estimates net new inflows into the products were $45 billion in 2009, down from $58 billion in 2007, but up from 2008′s $43 billion. Morningstar notes that “every single category of target-date funds enjoyed positive inflows” all three years.
One explanation for the growth is the funds’ prevalence as a default option among employer-sponsored 401(k) plans. However, Morningstar stresses that this isn’t the only reason for target-date funds’ success.
“Redemption rates in target-date funds are below the fund-industry average, despite press coverage that often suggests that participants have been deeply unhappy with their returns. In addition, many partici-pants bought target-date funds of their own accord–that is, outside of a default investment program.”
Investors’ willingness to stay in these funds led to stronger returns than in other mutual funds, according to the report.