Morningstar recently announced findings from its 2010 Target-Date Series Industry Survey, which draws on Morningstar’s extensive research on 20 of the largest target-date series.
The survey documents trends in target-date fund design, costs, and asset flows since the 2008 market downturn as well as target-date strengths, weaknesses, and returns to investors.
It also offers an examination of target-date fund disclosure, and an analysis of the performance of fund series using proprietary, or in-house, versus independent managers in target-date fund construction.
“Target-date funds have been the subject of unprecedented regulatory, governmental, and media criticism in the wake of 2008`s market slide, but that has not deterred millions of investors from making these funds the centerpiece of their retirement savings. According to our data, more than $45 billion in new cash flowed into these funds in 2009,” said Laura Pavlenko Lutton, editorial director for Morningstar’s mutual fund research group, in a statement.
“Target-date funds have become the retirement vehicle of a generation, and for some good reasons,” she continued. The funds have structural advantages over traditional mutual funds, including generally lower costs and dynamic asset allocation that automatically grows more conservative as investors age.`
Within the survey, Morningstar examined investor returns, which represent a typical shareholder`s experience. Investor returns reflect monthly flows in and out of funds, and the returns earned.
With target-date funds, investor returns over the past three years exceeded the funds’ total returns in every target-date category except for one, and far exceeded a shareholder’s experience owning a traditional mutual fund.
Investors may have turned a deaf ear to criticism of target-date funds, but many fund companies haven’t.
Four general trends emerged in this year`s survey.