American Funds offering TDFs in collective investment trusts

The firm is one of the last holdouts to launch CITs, signaling increased demand for the investment vehicle

Aug 3, 2018 @ 1:29 pm

By Greg Iacurci

Capital Group, the asset manager behind the American Funds investment brand, is planning to offer its target-date mutual funds in a collective-investment-trust-fund vehicle later this year, in a move to seize on the growing popularity of CITs in 401(k) plans.

Capital Group is among the retirement industry's largest and fastest-growing TDF providers, managing $89 billion in target-date mutual-fund assets at the end of 2017, according to Morningstar Inc. The company manages more than $1.8 trillion in total assets worldwide.

It is also one of the "few big players" that doesn't currently offer collective investment trust funds to 401(k) plans, said Chris Brown, founder and principal of Sway Research, which studies investment distribution in retirement plans.

Capital Group, along with TIAA Investments and John Hancock Investments — respectively the fifth-, ninth-, and twelfth-largest TDFs providers — are the only major providers to offer the multi-asset funds in mutual funds only, according to Sway data.

By comparison, other large providers, such as Vanguard Group, Fidelity Investments and T. Rowe Price, have made target-date CITs available since 2007-08.

"We have been following the market very closely and speaking with our clients, and it's clear that there is a growing demand for CITs," Ralph Haberli, sales director for Capital Group's institutional retirement unit, told InvestmentNews.

A Capital Group spokesman didn't specify the time frame for the CIT launch of its American Funds Target Date Retirement series. He also didn't say whether the firm is planning on making other asset classes available in collective trust funds.

Advisers and employers have turned to collective trust funds primarily as a way to reduce investment costs, which have become a top concern in an environment of hyper fee sensitivity and increased litigation activity around excessive 401(k) costs.

The vehicle often yields cost savings when compared with mutual funds because CITs generally have lower operational expenses, are restricted from advertising to the public and don't have to file prospectuses, shareholder reports and proxy statements.

Asset managers focused on active management of their funds, such as Capital Group, have been pressured to reduce fees as index funds, which are often lower in cost, have surged in popularity in 401(k) plans and the broader retail market.

CITs are regulated by the Office of the Comptroller of the Currency and are only available to retirement plan participants, unlike mutual funds, which are overseen by the Securities and Exchange Commission and are also available to retail investors.

In the largest 401(k) plans, those with more than $1 billion in assets, collective funds already hold a greater share of assets than mutual funds — 40% versus 28%, respectively, according to a study by the Investment Company Institute and BrightScope Inc. Mutual funds still reign as king among smaller plan sizes, but the gap is narrowing.

Target-date funds have become the most popular investment option in 401(k) plans over the past decade. American Funds as the fastest-growing TDF provider on a percentage basis between 2015 and 2017, with a 58% annual growth rate, according to Sway Research.

The fund brand saw $24 billion in net positive flows into its TDFs last year, according to Morningstar data. Those flows represented 145% of the firm's total mutual-fund flows in 2017 — meaning Capital Group would have seen outflows at the firm level had it not been for the target-date series' growth.


What do you think?

View comments

Upcoming event

Sep 24


Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.


Schwab's Jeff Kleintop: Prep for volatility given China trade uncertainties

China could be considered a developed market in five to seven years , according to Jeff Kleintop, chief global investment strategist, Charles Schwab.

Latest news & opinion

Funding for Reg BI, other SEC advice reform efforts denied in Waters amendment

House likely to approve measure that effectively kills rule package, but it faces uphill battle in Senate

Wall Street lashes out at Sanders' plan to pay off student debt with a securities trading tax

Financial pros argue that a transaction levy will hurt mom-and-pop investors along with investment houses.

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.

Give us a break, active managers say

Seven portfolio managers share their outlooks for the rest of the year, generally agreeing that it's been hard for active managers to stand out.

GPB Capital reports decline in value of two biggest funds

One has dropped by 25.4% and the other by 39%, according to the company.


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print