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Ibbotson Report Shows Q3 Equities Rebounded

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Ibbotson Associates, a subsidiary of Morningstar, released a report on Tuesday that found equity markets rebounded in third-quarter 2010. The Ibbotson Target Maturity Report found the average target maturity fund returned roughly 10% — lower than the S&P 500 Index, but "significantly above" the BarCap U.S. Aggregate Bond Index of 2.5%. The Morningstar Lifetime Moderate Index family performed even better, with a 10.8% return.

The report noted that the strength seen in the third quarter is especially welcome, as second-quarter performance fell more than 7% on average. The average target maturity fund had a year-to-date return of 9.2%, while the Morningstar Lifetime Moderate Index returned 9.2%.

"The second quarter of 2010 was the first in five quarters in which asset classes experienced negative returns, but the third quarter saw a return to positive performance," according to the report.

Emerging market equities returned 18.2% for the third quarter. Foreign equities also performed well, returning 16.5%. Large growth equities returned 13%, followed closely by small growth equities at 12.8%. Value equities' returns were slightly lower; large value equities returned just over 10% and small value returned 9.7%. Real estate and commodities were also top performers at 12.8% and 11.6%, respectively.

While the first quarter of 2010 saw a high of $15 billion in average quarterly flows, target maturity flows settled around $10 billion in the third quarter. "Anecdotally," the report suggests, "the drop-off is attributed to the transition of some significant defined contribution (DC) accounts from the open-end structure to both the collective investment trust form as well as to custom target maturity solutions."

For the first time, more than half of quarterly flows went to passively managed funds, and offerings grew at 8.4%. Comparatively, actively managed offerings grew at a 2.33% rate.

The report noted that investors are more likely to opt for index options the closer they get to retirement, likely arising from "a desire to avoid management risk that was a clear pitfall during 2008's market correction."

"Investors who intend to retire in the near term are willing to assume market risk, but not the risk of choosing the wrong manager," according to the report.


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