TDFs Continue Growth as Target-Risk Funds Lose Assets

The growth rate of target-date funds continues to slow but remains positive, as plan sponsors move to collective trusts and custom solutions, according to Morningstar’s quarterly target-date report.

In the second quarter, target-date funds (TDFs) experienced $19.3 billion in positive inflows. Total assets under management (AUM) surpassed $760 billion at the end of the quarter.

Target-risk funds saw aggregate outflows of $2.9 billion during the quarter. Total AUM at the end of second quarter was nearly $752 billion, according to Morningstar’s quarterly target-risk report.

This quarter marks only the second in the past three years that target-risk funds have seen total AUM fall, Morningstar says. Still, as of the end of Q2, total assets in target-risk funds were up 1% from a year ago.

After two consecutive quarters of positive returns, average TDF performance reversed course with an average loss of -0.3%. Over the last 12 months the average TDF gained 2.1%.

Individual asset class performance was mixed during both the second quarter and the last 12 months, according to the report. In the U.S., growth equities continued to outperform value equities, with small growth stocks among the best performing asset classes for the last 12 months. While diversification into non-U.S. equities hurt the performance of TDFs over the last 12 months, larger exposures to developed foreign equities helped fund performance in the second quarter of 2015. Among alternative asset classes, commodities were the worst performing over the year and real estate investment trusts (REITs) were the worst performing in the second quarter.

Target-risk funds lost -0.5% on average for the first quarter, but gained 1.8% over the past 12 months.

The reports are available here.