Investing October 15, 2009

Target Maturity Funds See Another Positive Quarter

October 15 2009 (PLANSPONSOR.com) - Target maturity funds enjoyed their second quarter in a row of positive returns, and on an annual basis significantly outperformed the S&P 500 Index, according to the Ibbotson Target Maturity Report for Q3 2009.
Reported by

The report said 173 of the 319 funds with at least a one-year history ended the most recent quarter with a positive annual return.

The average target maturity fund returned 14.1% during the third quarter, slightly below the S&P 500 Index, which gained 15.6%. The weighted-average return of the 13 indexes that collectively form the Morningstar Lifetime Moderate Index family was 14.1%. On a one-year basis, the average target maturity is slightly positive, with a return of 0.44%. The Morningstar Lifetime Moderate Index family gained 2% over the last 12 months, while the S&P 500 Index lost 6.9%.

Get more!  Sign up for PLANSPONSOR newsletters.

The average 2010 fund earned 9.8% in the third quarter, while the average 2020 fund posted an 11% gain, according to the Morningstar data. The average 2030 fund saw a 15.1% rate of return, and the average 2040 fund gained 16.1%. The gain for the average 2050 fund was 16.8%.

All of the asset classes that typically make up target maturity funds had positive returns again in quarter three. High yield bonds produced equity-like returns of 14.2% helping the performance of target maturity funds that implement a portion of their fixed income asset allocation with high yield.

The equity asset classes all produced double-digit positive returns. Emerging market stocks (21% quarterly return), non-U.S. developed stocks (19.5%), U.S. small value (22.7%), and real estate (33.3%) were the standout performers, helping funds with higher than average exposures to these asset classes.

Estimated flows into target maturity funds slowed in the third quarter as compared to the second quarter, as measured by flows as percentage of beginning AUM. Ibbotson said contributions to funds in the 2021 to 2050+ range peaked in the first quarter of 2009 and have been decelerating ever since. Meanwhile, Retirement Income and the categories ranging from 2000 to 2020 have continued to enjoy increasing quarterly growth in flows.

Table 4: Target Maturity Fund Flows Q3 2009

Asset Under Management

$Mil

Estimated Net Flow

$Mil

align="right"> 

align="right"> 

align="right"> 

align="right"> 

Flow as a % of beginning AUM

Target Date

align="right"> End Q2

align="right"> End Q3

align="right"> Q3

align="right"> Average

align="right"> (past four qtrs.)

Q3

Q2

Income

align="right"> 7,576

align="right"> 9,910

align="right"> 618

align="right"> 233

align="center"> 7%

align="center"> 4%

  2000-2010

align="right"> 24,017

align="right"> 30,750

align="right"> 430

align="right"> -129

align="center"> 2%

align="center"> 1%

  2011-2015

align="right"> 19,936

align="right"> 27,980

align="right"> 1,364

align="right"> 978

align="center"> 6%

align="center"> 5%

  2016-2020

align="right"> 33,062

align="right"> 47,563

align="right"> 1,861

align="right"> 1,486

align="center"> 5%

align="center"> 5%

  2021-2025

align="right"> 18,810

align="right"> 28,472

align="right"> 1,586

align="right"> 1,457

align="center"> 7%

align="center"> 8%

  2026-2030

align="right"> 23,397

align="right"> 35,591

align="right"> 1,660

align="right"> 1,641

align="center"> 6%

align="center"> 7%

  2031-2035

align="right"> 11,827

align="right"> 18,828

align="right"> 1,174

align="right"> 1,197

align="center"> 8%

align="center"> 10%

  2036-2040

align="right"> 13,671

align="right"> 21,795

align="right"> 1,228

align="right"> 1,319

align="center"> 7%

align="center"> 10%

  2041-2045

align="right"> 4,807

align="right"> 8,082

align="right"> 645

align="right"> 667

align="center"> 10%

align="center"> 14%

  2050+

align="right"> 2,545

align="right"> 4,562

align="right"> 449

align="right"> 467

align="center"> 13%

align="center"> 19%

Totals

align="right"> 159,649

align="right"> 233,533

align="right"> 11,015

align="right"> 18,633

align="center"> 5%

align="center"> 6%

Source: Morningstar DirectSM

«