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Strategic Insight: VA Lifecycle Assets Top $266 Billion in 2011

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Variable annuities represented nearly one-third of lifecycle investment assets at year-end 2011, according to a new report.

Market research firm Strategic Insight (New York, N.Y.; Stamford, Conn.; Boston, Mass.) published this finding in a summary of results from a new survey of the lifecycle investment products market.

Lifecycle funds automatically adjust the proportional representation of an asset class in the fund’s portfolio during the course of the fund’s time horizon. The adjustment transitions from a position of higher risk to one of lower risk as the investor ages and/or nears retirement.

Variable annuities at year-end 2011 accounted for $266 billion of lifecycle assets, or 31.5% of the total. Nearly all (96%) of the assets resided in target risk strategies, the report finds.

The $255 billion variable target risk market attracted $4.0 billion of net flows, while posting net returns of 5.68% during the quarter. Variable target date assets grew 9.6% over the quarter to $11 billion.

The lifecycle investment product market, the survey says, increased to $842 billion as of year-end 2011, representing an 8% increase since the close of the third quarter and a 5% increase from the end of 2010. Lifecycle products (including both mutual fund and variable product) drew net inflows of $11.6 billion in the fourth quarter of 2011.

Mutual funds made up approximately two-thirds (or 68%) of lifecycle assets, garnering $7.2 billion during the fourth quarter, the survey says. Target date mutual funds returned 6.85% on a weighted average basis over the quarter, and netted $9.1 billion in flows.

Although target risk mutual funds returned 6.23%, they experienced the second consecutive quarter of net outflows, with $1.9 billion of net outflows, the survey finds.

Target date mutual fund assets remained concentrated among the largest managers. As of 2011, the five largest target date mutual fund providers represented 84% of the market.

Managers leading 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.

Despite fewer than 10 firms active in the variable target date space, assets have grown by 31% on a year-over-year basis, 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, the survey says.


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