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March 02, 2015 at 07:00 PM
During the final quarter of 2014 the average target-date fund gained 1.7%, trailing both the S&P 500 (4.9%) and the Barclays U.S. Aggregate Bond Index (1.8%). Still, target dates surpassed the results of the Morningstar Lifetime Moderate Index in Q4’14, which was 1.2%.
For the full year, the average target-date fund improved 5.3%, topping the index’s 5.2% yearly performance but underperforming the S&P 500′s 13.7% gain and the Barclay’s bond index’s 6.0% improvement.
“Within U.S. equities taking on risk paid off as small-cap equities beat its large-cap counterparts by nearly 5%,” explained Jeremy Stempien, director of investments for Ibbotson Associates, a unit of Morningstar, in a recent report.
“Small-cap growth stocks returned double digit returns with a 10.1% gain over the period, whereas large-cap growth equities returned significantly less with a 4.8% return. Value stocks saw similar outperformance with small-cap value returning 9.4% versus 5.0% for its large-cap value counterparts,” he noted.
Commodities had a bad time, dropping 12.1% in the fourth quarter. REITs, though, were the top-performing asset class with a return of close to 13% in the period.
Full Year
Equities tended to outperform fixed income in 2014, as has been the case in four of the last five years, according to Stempien.
“Within the risk spectrum, those asset classes that typically take on less risk outperformed those that take on more risk, as can be seen with U.S. large-cap stocks outperforming U.S. small-cap stocks significantly during the period,” he explained.
Growth and value stocks within the U.S. performed “relatively similar overall,” the investment expert says. However, large-cap value outperformed small-cap value by 9.3%, and large-cap growth outperformed small-cap growth by 7.4%.
