Research

DATA & RESEARCH | PLANADVISER September 2017

2017 PLANSONSOR Target-Date Fund Buyer's Guide

Our guide to the size, scope and design of target-date options

By Alison Cooke Mintzer See Archive >

PASO17_48-49_JooHee-YoonThe data submitted this year for the Target-Date Fund (TDF) Buyer’s Guide, compiled by sister publication PLANSPONSOR, reinforces trends seen when first compiling this guide, in 2015. One was that asset managers are deeply committed to target-date fund solutions, as indicated by an exceptionally high research participation rate—74 products—which encompasses 99% of the total TDF marketplace by assets. Second, target-date funds, and their managers, continue to evolve their thinking and underlying allocations.

The 2017 TDF Buyer’s Guide represents $1.6 trillion in assets as of June 30. Of the target-date fund market reported, 60% of products are in mutual funds, 37% in collective investment trusts (CITs) and 3% in variable portfolios.

The following analysis is based on the 71 off-the-shelf, or prepackaged, products—custom solutions are excluded—listed starting on page 54. A slightly expanded guide is available online.

Key to any adviser and plan sponsor due diligence process that involves fund differentiation is to examine the asset manager’s philosophy and methodologies, such as how they use passive management or unaffiliated investment managers.

About 38% of the off-the-shelf TDF families—28 of those listed in our guide—use a hybrid or active/passive method of portfolio construction. Another 28%—21 suites—primarily use active underlying funds, and 27%—20 suites—favor index or passive underlying funds. The remainder cited something else in that field.

As to strategy, open architecture is the presence of an unaffiliated manager overseeing at least one part of the portfolio. Thirty-seven of the funds in the guide now provide this feature; however, the largest fund investment managers—Fidelity Investments and T. Rowe Price—do not, meaning less than 25% of TDF assets are in funds with unaffiliated managers.

Also of note, more than half of the products here allow the investment manager some tactical deviation from the glide path when the situation warrants.

Custom target-date funds allow a retirement plan adviser and sponsor to work with an asset manager to specify glide path construction, underlying asset allocation and ongoing advisement. Nine asset managers listed here provide that option.

Methodology

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Data for the 2017 PLANSPONSOR Target-Date Fund (TDF) Buyer’s Guide was collected in the second quarter of this year. PLANSPONSOR editors contacted investment managers and providers for their most up-to-date data on their target-date investment products available for use in defined contribution (DC) plans.

The submitted data reveals details about target-date products representing an estimated 99% of the total TDF market by assets—$1.6 trillion as of the middle of the third quarter. Information about the more than 80 products listed here was provided directly to PLANSPONSOR. Additional data may appear in the full, digital guide.

Product descriptions are as of the survey deadline in August and are subject to change; advisers and plan ­sponsors may contact providers directly for further information­. The list of products in this guide is not exhaustive. Information was collected on a best-efforts basis. We extend our appreciation to the various providers included for generously supplying their target-date product information.