U.S. target-date funds have strong home-country equity bias

Mercer survey of 68 TDF series finds assets grew 30.8% in 2017

Apr 10, 2018 @ 10:22 am

By Meaghan Kilroy

Target-date funds generally still have a strong U.S. equity bias, according to a Mercer target-date report released Monday.

The consulting firm's survey covered 68 off-the-shelf mutual fund and collective investment trust target-date series.

While target-date funds' international equity allocations generally have risen in the past five years, the median allocation remained "fairly static" in 2017, Mercer said. The median allocation for 2017 is below the non-U.S. equity component of the MSCI All Country World index, which is 47.8%, the report noted.

In discussions with target-date managers on their equity allocations, Mercer said its researchers found many have continued to display U.S. equity bias because plan participants have a natural home-country bias, many of their target-date peers have home-country bias, and the presence of "some evidence that U.S. equities have displayed less downside risk in times of stress than international equities."

Mercer's report also looked at the growth of target-date funds in general and found assets rose $1.7 trillion in 2017, up 30.8% from 2016, and up 54.5% from 2015.

(More: Vanguard expands TDF dominance with 'unbelievable' growth)

The report found that the overall allocation to growth assets has remained largely unchanged over the past year "ignoring the natural reduction expected from the progression of the glidepath."

Looking at vintage years, assets peaked in 2030 vintages and declined in 2025 and 2020 vintages, the report found. The decline in 2025 and 2020 vintages was more pronounced in 2017 than 2016, which could indicate that older participants are moving out of target-date funds before retirement, Mercer's report said, adding previous studies also have suggested that could be the case.

(More: Active TDF managers push to compete on fees)

Meaghan Kilroy is a reporter at InvestmentNews' sister publication, Pensions&Investments.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Behind the scenes at Pershing Insite 2018

What goes on behind the scenes at one of the industry's biggest conferences? Join us for an all-access sneak peek!

Latest news & opinion

Mutual funds feel the pinch of platform fees

No-transaction-fee options are a big hit with investors, but funds wind up paying the costs — and passing them on.

Divorce reduces retirement readiness

The new tax law could increase financial challenges for divorced people, but planning opportunities abound.

Merrill Lynch fined $42 million for misleading customers

In addition to the practice of 'masking' trades, the wirehouse went to extremes to cover up the wrongdoing.

Advisers with billions in AUM leaving Wall Street

Merrill Lynch has seen two teams exit recently, each with more than $4 billion in client assets.

Wells Fargo weighs changes to wealth unit

The move would reflect the bank's effort to cut $4 billion in costs.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print