Although the target-date fund universe lost four funds in 2012, 401(k) participants as a whole are shedding fears brought on by the 2008 financial crisis and returning to the investment vehicle, BrightScope and Target Date Analytics reported Tuesday in their “Popping the Hood VI” report.
The net number of target-date fund families fell to 48 in 2012 from 50 in 2011, yet TDFs saw a 20% increase in assets under management from 2011 to 2012, according to the 200-page report, which provides a detailed analysis of target-date funds and fund families.
The four exits from the TDF industry in 2012 included Columbia (graded F in “Popping the Hood IV” and D in “Popping the Hood V“); Oppenheimer (F in Hood IV, C in Hood V); Goldman Sachs (F in Hood IV, F in Hood V); and American Independence NestEgg, which was not graded. Two new entrants were JPMorgan SmartRetirement Blend and PNC Target. (Meanwhile, T. Rowe Price has plans to release a new lower equity TDF in August.)
Target Date Assets Seen Quadrupling by 2020
“Popping the Hood” projects target date fund assets will reach $2 trillion in 401(k) plans by 2020 versus $503 billion in TDF assets in 2012. With defined contribution plans as the primary distribution channel, these funds continue to make huge in-roads into the marketplace because “401(k) participants want a buy-and-forget strategy where they don’t have to worry about rebalancing portfolios regularly,” according to the report.
In addition, the report notes, the U.S. Labor Department has allowed TDFs to be a qualified default investment alternative.
“We have seen investors returning to target date funds as a whole. They represent $500 billion in assets, up 20% in just one year. Strong returns in both the bond and the equity markets helped with that,” said Brooks Herman, BrightScope’s head of data and research, in a phone interview. “One of the biggest surprises for us was a net contraction in target-date fund series in this year’s report. Last year we covered 50, and this year we covered 48. This is the first time in the history of our ‘Popping the Hood’ reports that this has happened.”
BrightScope is an independent provider of retirement plan ratings and investment analytics to participants, plan sponsors, asset managers and advisors in all 50 states. Target Date Analytics is an independent provider of analysis, theory and benchmarking of target date funds.
Wiggle Room for Asset Managers