TDF Analysis | Published in June 2017

Immense Growth

Strategic Insight’s quarterly target-date fund analysis

By Matt Cirillo | June 2017

Over the last decade, assets in target-date mutual funds (TDFs) have grown from $132.7 billion to $940.9 billion, as of the end of Q1 2017. This is representative of a compound annual growth rate (CAGR) of 21.6% for the period. As a point of comparison, non-TDF, non-fund-of-fund U.S. equity mutual fund assets grew at an annual rate of 4.4% over the same 10 years.
While generally favorable market conditions have aided in TDFs’ growth, flows into the products have continued to trend upward, with $72.3 billion of net inflows over the 12 months ended March 31. This marks the greatest volume of inflows over a single 12-month period for TDFs to date.
The categories leading the charge on these trailing 12-month flows are target-date 2021-25, target-date 2026-30 and target-date 2031-35, respectively. Together, these three vintages represent 51.3% of total net flows for the period and 43.7% of total TDF assets. The second largest category by size is target-date 2016-20; however, flows have begun to taper in these funds, accounting for just 6.5% of total TDF net flows for the period.
Flows into the target-date 2016-20 category have exhibited a consistent decrease in share of total TDF flows, declining from a 20.8% share for the same period 10 years ago and a 15.2% share five years ago. The reduction in flows is not surprising, though, as funds within this vintage are being carried across the threshold of their target date to join the ranks of TDFs-past and thence transition from accumulation strategies to capital preservation and draw-down vehicles.