10 things to know about TDFs

Facts advisers need to know about the increasingly popular 401(k) investments

Mar 6, 2019 @ 12:57 pm

By Greg Iacurci

Target-date funds are booming, with combined assets in mutual funds and collective investment trust funds approaching $1.8 trillion, according to Sway Research. The average 401(k) plan holds roughly 22% of its assets in TDFs, up from 8% a decade ago, according to the Plan Sponsor Council of America.

Following are some stats about these increasingly important and prevalent funds, from Sway's annual report assessing the state of the TDF market.

Concentration at the top is increasing

The 10 largest TDF providers control more than 90% of the assets. To be exact, only 7.7% of assets are held by firms outside the top 10.

The top five — Vanguard Group, Fidelity Investments, T. Rowe Price, BlackRock Inc. and American Funds — have the lion's share, with 78%. And that share is growing — it's up 1.5 percentage points in three years.

CITs are gaining market share from mutual funds

Target-date collective investment trust funds, or CITs, held $677 billion at the end of 2018, roughly 38% of total TDF assets. That's up from 32% three years ago.

Over the same time span, the share of TDF assets held in mutual funds dipped to 62% from 68%.

Active loses ground

Passive TDFs — those that primarily use index funds — hold 53% of total assets, up from 47% in 2015. Assets held in active TDFs have declined in lockstep, to 38% from 46%. The remainder are hybrid TDFs, which invest in both active and index funds.

Not all active managers are suffering

American Funds was second only to Vanguard in terms of TDF asset growth over the past three years, taking in $69 billion, which represents an average annual growth rate of 43%.

Further, American Funds' share of target-date mutual funds more than doubled, to nearly 10% from 4.7%.

Most providers lace their TDFs with in-house funds

The overwhelming majority of TDF assets are held by by asset managers that employ a single proprietary approach. Providers of single-proprietary funds use only in-house funds as their TDFs' underlying investments, which contrasts with multimanager funds, which diversify a TDF's underlying holdings across different asset managers based on asset-class expertise.

Ninety-five percent of TDF assets are held in these types of funds, up from 93% three years ago.

Record keepers dominate

Money managers with affiliated record-keeping businesses that serve as a distribution platform for their funds control the vast majority of the TDF market.

These firms — such as Fidelity, Vanguard and T. Rowe Price, the three largest providers — hold 85% of TDF assets, despite offering just 49% of the funds available on the market.

And that market share is increasing — it's up from 83% in 2015.

T. Rowe leads active managers

T. Rowe Price holds the most actively managed TDF assets, with $211 billion, or 31.5% market share. It took the lead two years ago from second-place Fidelity, which holds $185 billion in active TDF assets.

And Vanguard is the leader among passive managers

Vanguard holds $649 billion in passively managed TDF assets, controlling nearly 69% of the passive market share. Second-place BlackRock has $149 billion, a 16% share.

Fees are coming down

Asset-weighted expense ratios for TDFs are decreasing, in line with broader trends in asset management. In just one year, the average cost for a passive TDF decreased by 2 basis points to 13 bps; active funds cost an average 67 bps, a decrease of 4 bps from 2017.

"Through" is more popular than "to"

Of the 15 largest TDF series, only three have a "to" glidepath, which means the funds stop winding down their equity allocations at retirement. (A "through" fund gets gradually less aggressive over several years after the retirement date.)

BlackRock's LifePath index funds target-date funds (the mutual funds and CITs) and JPMorgan's SmartRetirement mutual funds have a "to" glidepath.


What do you think?

View comments

Recommended next


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.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print