BrightScope, an independent financial information company, and Target Date Analytics, which provides analysis, theory and benchmarking of target-date funds, recently released their newest study in their “Popping the Hood” series, providing a detailed analysis of target-date funds (TDFs) and fund families.
The study notes that TDF assets continue to grow as a percentage of total defined-contribution assets, with BrightScope projecting that target-date assets will reach $2 trillion in 401(k) plans by 2020.
The study says that target date funds continue to make “huge in-roads into the marketplace,” with the primary distribution channel being DC plans because 401(k) participants want a “buy and forget” strategy where they don’t have to worry about rebalancing their portfolio regularly, and because the Department of Labor allows TDFs to be a qualified default investment alternative (QDIA).
However, the study also notes that number of target-date fund families is no longer increasing.
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New entrants to the space include BlackRock’s LifePath Index and Lincoln Financial Group’s Presidential Protected Profiles, but Columbia, Oppenheimer and Goldman Sachs all recently announced that they would be closing down their target-date funds this year.
Some firms’ offering fees have dropped significantly as well since last year, the study found. For instance,
- Allianz reduced fees from an average of 0.91% to 0.64%
- Nationwide reduced fees from an average of 0.64% to 0.42%
- PIMCO reduced fees from 0.88% to 0.80%
The study says that the standard to be a truly low-cost, index TDF fund series is now under 20 basis points thanks to Vanguard (0.18%), TIAA-CREF Lifecycle Index (0.18%) and Fidelity Freedom Index (0.19%). BlackRock LifePath Index (0.28%) and iShares (0.31%) are close behind.
Fees as a whole are still high—.72% is the average institutional TDF fee—but that has fallen 3 basis points since last year.