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Q3 Good for Target Funds, Asset Classes

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The latest report on fund performance from Morningstar’s Ibbotson Associates shares the results of the third quarter. During the past three months, for instance, target-date, or target-maturity, funds tracked in the group’s research gained 5.1% on average for the quarter. Plus, they’ve improved 18.9% over the past 12 months. During the same period, the S&P 500 rose 6.4% and 30.2%, respectively. 

In addition, flows into these funds have remained strong, with nearly $12 billion flowing into the category during the quarter, says Ibbotson’s report. As of Sept. 30, total assets in target-maturity funds were nearly $466 billion, a 36% increase from a year ago with Fidelity, Vanguard, and T. Rowe Price holding about 75% of total assets.

As for the range of gains for all target-date funds posting gains, those closest to their retirement date improved 1.8% for the third quarter, while equity-heavy funds furthest from retirement ticked up close to 7.7%.

“Still, the number of funds outperforming their respective Morningstar index in the third quarter was low: 39 out of 398 target maturity funds, or roughly 10% of the fund universe outperformed. The index series held up exceptionally well this quarter outperforming more than 90% of retail target date funds,” wrote authors Jeremy Stempien and Cindy Galiano.

Equities across the globe did well in the most recent period, with non-U.S. developed (7%) and emerging-market equities (7.9%) outperforming U.S. equities. U.S. large caps did better than small caps, while value beat out growth. Commodities returned nearly 10% in the quarter, and U.S. REITs showed moderate performance with a 1% return.

“Fixed income performance was more muted than equity returns this quarter,” according to the Ibbotson report. “The higher credit seeking segments of fixed income, such as high-yield bonds, topped the list with a 4.5% increase during the period.”

In the past 12 months, domestic equity outperformed international equity, and U.S. equities had gains of about 30%. Nonetheless, non-U.S. developed and emerging market equities improved 4.3% and 17.3%, respectively. 

The best-performing asset class of the past 12 months: REITs, which gained 33.8%. During the same timeframe, commodities had average returns of 6%.

High-yield bonds posted gains of 19.4% in the past year, while TIPS and U.S. aggregate bonds returned 9.1% and 5.2%, respectively.


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