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Vanguard Sees 90% Drop in Target Date Fund Flows: Report

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Last year was not good to target date funds, especially those sponsored by Vanguard. Overall, target date funds experienced their first year of net outflows since at least 1994, when Morningstar began to track the data. 

Vanguard’s Target Retirement series had its biggest annual drop in net flows, collecting less than $3 billion, or under one-tenth of its $31 billion of net flows in 2019. 

Fidelity’s Freedom Index Series, though, posted the biggest inflows among the top 10 target date mutual fund series, collecting $15.6 billion, or 25% more than in 2019, according to analysis by Morningstar’s Jason Kephart.

These inflows catapulted the Fidelity series to the top spot for flows, displacing Vanguard’s series for the first time since 2008.

The Fidelity funds were one of only two series of TDFs that took in more than $1 billion in 2020 and experienced higher net flows than the prior year.

The other series was JPMorgan SmartRetirement Blend, which collected $4.1 billion and posted a 157% increase in net flows. 

Vanguard’s series took in $2.7 billion.

More Details on TDF Flows

Overall, investors pulled a net $6.7 billion from target-date funds in 2020, although the average performance of these funds was strong, ranging from 9% for the 2000-10 retirement series to over 15% for the 2060 retirement series.

“With no smoking gun from poor performance, it’s more likely that the slowdown in flows reflects the very real economic stress and anxiety affecting investors as the COVID-19 pandemic continues into 2021, rather than a lack of interest in target-date strategies as a retirement savings vehicle,” according to Kephart.

Demand for index-based target date strategies remained strong, taking in over $28 billion, or 60%, of the $46 billion collected among the top 10 target date series.

This trend did not surprise Kephart, given that index funds are the cheapest TDFs and that many 401(k) lawsuits are being filed over excessive fees.

During the first eight months of 2020, 60 excessive fee lawsuits were filed against the 401(k) plans, three times as many in all of 2019, according to Bloomberg data.


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