Morningstar reported Monday that target-date mutual fund assets passed the $1 trillion threshold in 2017 after amassing a record $70 billion in estimated net flows during the year.
The funds have experienced more than $40 billion in net flows each year since 2008, when assets in target date funds stood at $158 billion, according to the report.
“Even more remarkable than the funds’ strong growth, though, was seeing the heightened demand for low-cost, passive target-date series,” Jeff Holt, director of Morningstar’s multi-asset and alternative strategies team, said in a statement.
Holt noted that in 2017, nearly 95% of the $70 billion in estimated net flows to target-date funds went into series that invest predominantly in index funds, likely driven by retirement plan sponsors’ demand for low costs.
This was a sizable increase from two-thirds in 2016, he said.
The report found that target-date funds’ average asset-weighted expense ratio fell to 0.66% at the end of 2017, down from 0.91% five years ago.
Lower fees are part of a multiyear downward trend in the mutual fund sector. Recent research showed that between 1996 and 2017, investors paid 43% less on average for equity, hybrid and bond mutual funds, including both actively managed and index mutual funds in those asset classes.
According to the Morningstar report, although new lower-cost series rolled out by target-date providers to meet demand have generally been the most popular, not all have produced better performance results than older, costlier ones.
U.S. large-cap stocks — generally the top performers in recent years — easily outpaced typically more diversified target-date fund portfolios over the past five years through December 2017.