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The first-quarter bear market, brought on by the coronavirus pandemic, is putting target date strategies to an unprecedented test.

Morningstar reported Tuesday that assets in target date strategies, which had reached $2.3 trillion at the end of 2019, fell to $1.9 trillion as of March 31, about a 17% decline.

The report said target date funds’ performance met expectations during the first quarter’s turbulence, given their allocation to equities and diverse bond portfolios that often hold sizable stakes in corporate bonds.

However, outcomes varied meaningfully for people nearing retirement. Category average returns ranged from -7% for the target date retirement category to -20% for the target-date 2060+ category. The average 2020 target date fund lost 10%.

“Bear markets tend to test investors’ resolve, and we saw this among normally stolid target-date investors,” Jason Kephart, strategist for Morningstar’s multi-asset and alternative strategies research team, said in a statement.

“While target-date strategies performed largely as expected, some strategies nearer to the retirement date skidded to big losses, rattling investors. However, when we look at the landscape over a longer period, the long-term trends remain.”

According to the report, 2020 target-date funds that continue to lower the allocation to equities after the retirement date — Morningstar calls these “through” series — fared worse because of their higher average allocation to stocks at retirement than funds that hold steady allocations once they reach the target date, or “to” series.

The average 2020 “to” series lost 8.4% in the first quarter, compared with an average loss of 10.6% in “through” series.

Collective investment trusts are growing at a faster clip than target date funds, Morningstar reported. In 2019, CITs received some $69 billion of net inflows, an organic growth rate of 10%.

Target date mutual funds had approximately $59 billion of inflows last year, but because of their higher starting asset base that came out to an organic growth rate of 5.4%.

In 2019, investors continued to exert pressure on target date funds by choosing cheaper share classes. Morningstar reported that $58 billion went into share classes that charge less than 0.2% last year, up from $51 billion in 2018.

In contrast, share classes that charge a mid-range 0.41% to 0.6% had net outflows of $3 billion in 2019, a reversal from the previous year when those share classes had $19 billion of net inflows.

CITs, which generally cost less than mutual funds, have benefited from the trend toward lower fees, according to Morningstar data. Their market share had grown to roughly 40% as of March, up from less than 20% in 2014.

Over the past three years, CIT series launches have outpaced those of mutual funds by nearly five to one.

Morningstar’s report said the target date industry remains top-heavy, with the top five firms by assets representing 79% of target date strategy assets in 2019, up from 78% the year before.

BlackRock and American Funds both gained market share during the year, while Vanguard and Fidelity held steady, and T. Rowe Price lost ground. Vanguard, whose series boast low costs, remains the most popular target date series with a market share of about 37% at the end of March.

According to the report, target date strategies that favor actively managed underlying funds have generally suffered from the trend toward low-fee options. The majority of those series’ fees come from the underlying active equity funds.

An analysis of their equity factor exposures and active share indicates only modest differences compared with passively managed alternatives.

Passage of the Secure Act in December could have meaningful ramifications for target date funds going forward, according to the report. The legislation eases the liability risks plan sponsors face when offering annuities to participants and opens the door for annuities within a target date series’ glide path.

Morningstar said the inclusion of a guaranteed income option raises due diligence questions for investors, with a microscope on fees, contract structure and impact on the glide path.