The Markets February 8, 2013

Target Maturity Funds Outperformed Indexes in Q4

Target maturity funds continue to see total assets climb to all-time highs.
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According to the Ibbotson Target Maturity Report by Morningstar, as of the end of 2012, total assets in target maturity funds were nearly $485 billion, a 29% increase from a year ago. Nearly half of target-date fund (TDF) assets are in categories closer to retirement, spanning from 2016 to 2030 retirement date funds. However, the organic growth rate of funds furthest from retirement (2051+) are highest, as new workers are perhaps defaulted into their retirement plans’ target-date fund offering, the report said.  

During the fourth quarter, inflows continued with more than $13 billion entering target maturity funds during the period. Target maturity fund returns were muted but managed to outperform both the S&P 500 and Barclays U.S. Aggregate Bond indexes. The average target maturity fund returned 1.7% in the fourth quarter, whereas the S&P 500 Index lost 0.4% and the Barclays Aggregate Bond Index returned a negligible 0.2%. Fund returns were boosted by diversification into non-U.S. equities and, to a lesser extent, high-yield bonds, which outperformed U.S. equities and core bonds. For the year, the average target maturity fund returned an impressive 13.1%, thanks to double-digit U.S. equity returns in the first quarter of 2012.  

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Asset prices across most asset classes experienced significant gains in 2012, which supported the performance of target maturity funds. Among equity asset classes, non-U.S. equities made up ground relative to U.S. equities, resulting in every equity asset class returning between 14.6% and 19.7%. Value outperformed growth, while large-cap and small-cap stocks had similar overall performance. Non-U.S. developed and emerging market equities generated handsome gains, outperforming U.S. equity. This benefited target maturity funds with significant allocations to the asset classes, returning 17.9% and 18.6%, respectively. REITs were the best-performing asset class in 2012, gaining 19.7%. Due to its negative fourth quarter return, commodities was the sole negative performer with a loss of 1.1% for the year.     

Fixed income continued to boost performance of well-diversified target maturity portfolios. In particular, high-yield bonds posted strong gains of 15.8% in 2012, on par with many equity asset classes. Treasury inflation-protected securities (TIPS) outperformed aggregate bonds, while the performance of shorter-term bonds was a muted 1.3%.   

The quarterly target-date fund report includes a “Year in Review” section that looks at longer-term trends. The report is here.

Deals & People February 8, 2013

U.S. Bank Adds VPs in Trust and Custody

Chris Kaiser, John Murphy and Pat Walsh join U.S. Bank Institutional Trust and Custody as vice presidents and business development officers.
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The three vice presidents are in the firm’s institutional trust and custody division, responsible for developing relationships with potential U.S. Bank clients.

Kaiser, based in Danbury, Connecticut, brings more than 20 years’ experience to the role, and most recently served as an investment adviser at J.P. Morgan Securities. He reports to Edward Buenaga, senior vice president and regional manager. He holds a bachelor’s degree from the University of Delaware in Newark and a master’s degree in business administration from LaSalle University in Philadelphia.

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Murphy has worked in the financial services industry for more than 30 years. He comes to U.S. Bank from Bank of America, where he served as market director for institutional trust and investments. He works out of the firm’s office in Washington, D.C., and reports to Buenaga. Murphy holds a bachelor’s degree from Villanova University and a master’s degree from Drexel University. He is a member of the American Society Pension Professionals and Actuaries and the Society of Professional Administrators and RecordKeepers.

Walsh has worked in the financial services industry for nearly 20 years, recently acting as vice president of retirement business services at Charles Schwab & Co. Inc. He works with advisers and recordkeepers to support U.S. Bank’s individually directed accounts. Walsh reports to Karl Wilson, senior vice president and regional manager, in San Francisco. He holds a bachelor’s degree in business administration from the University of Notre Dame.

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