Average industry glide paths “should reasonably meet the typical worker’s spending needs in retirement.”
Something of a hedge in confidence for a product that continues to generate controversy, but a report released Thursday from Morningstar details where target-date funds reside in their industry development.
The report, “Target-Date Series Research Paper: 2013 Industry Survey,” finds target-date series have become “established fixtures in defined contribution plans: assets are rising, fees are falling, and performance reflects strong broad market trends.”
It notes more target-date assets are shifting to passively managed investments, as both an underlying holding within a portfolio and as an overall investment approach. While 68% of target-date assets were in actively managed series as of Dec. 31, inflows to passively managed series—those that invest 80% or more in passively managed investments—surpassed flows into actively managed series for the first time for the 2012 calendar year.
Managers of target-date series have significantly increased allocations to non-U.S. equities. Since 2005, international stocks have risen from 24% of the average 2040 fund’s equity allocation to 36%, as of Dec. 31. Emerging-market bond funds appeared in nine target-date series in 2008, compared with 18 in 2012.