A new report from Morningstar finds that target-date funds, so widely criticized after 2008's market slide, have rebounded “quite nicely,” according to the company. In fact, investors who held on to their target-date 2010 funds through 2008's crisis and the ensuing rally have generally emerged with modest gains. From the equity market’s Oct. 9, 2007 peak through Feb. 17, 2011, target-date 2010 funds gained a cumulative 5% on average. Of the 23 funds that were in operation through the entire period, 14 posted a gain.
Target-date funds are an increasingly popular choice for Americans' retirement savings, especially as the funds' performance has rebounded in the bull market, the company says.
Morningstar's 2011 Target-Date Series Research Paper, an annual look at broad trends across target-date funds, found that target-date funds saw healthy inflows in 2010 relative to other mutual fund categories. Target-date funds had net inflows of $47.5 billion in 2010, a small increase over 2009's $45 billion in net inflows. Total net assets in open-end target-date funds reached $341 billion. Morningstar tallies another $33.7 billion in collective investment trusts, or CIT, target-date funds. Morningstar's count of CIT assets is not a comprehensive accounting since firms report CIT assets voluntarily, but companies with larger retirement plans are more often skipping traditional mutual funds and using cheaper CITs in their 401(k) plans.