Collective investment trusts are on pace to overtake mutual funds as the dominant target-date vehicle, data from a Morningstar report published today show.
CITs represented 43% of target-date assets at the end of last year, up from just 18% in 2014, according to Morningstar’s Target-Date Strategy Landscape report. Assets in those investments surpassed $1 trillion last year, reaching about $1.18 trillion, compared with $1.57 trillion in target-date mutual funds.
The trend has been years in the making, with retirement plan fiduciaries ever interested in the lowest-cost investment products. CITs often have lower costs than mutual funds, and frequently, investment providers offer analogous versions of the products in either structure. CITs have also become more similar in feel to mutual funds, as they often have prospectuses and materials akin to what plan sponsors are familiar with, and many provide valuations daily. And increasingly, investment providers have reduced the minimums plans need to qualify for CITs, bringing them down market.
Source: Morningstar
Aside from target-date funds alone, the CIT structure has also been gaining steam across defined-contribution plan menus. Over 10 years, DC plans have reduced their use of mutual funds by 10% and increased use of CITs by 25%, according to a report last month by Callan. Last year, 78% of larger plans indicated they use CITs, up from 67% in 2019, that report found. Meanwhile, mutual fund use was nearly flat, at 85%, compared with 84% a year prior.
According to Callan’s report, 11% of plans switched target-date products last year, and another 5% indicated they planned to do so in 2021.
The biggest target-date provider by far, Vanguard, saw its sales dip considerably last year, although its Target Retirement series became the first ever to surpass $1 trillion in assets, Morningstar’s report noted. That firm alone represented nearly 37% of all U.S. money in target-date strategies in 2020. However, net sales of its mutual-fund and CIT target dates fell by about 70% last year, at $19 billion, according to Morningstar. It was the first time since 2008 that Vanguard was not the leader by sales, the report noted.
The mutual-fund and CIT versions of BlackRock’s LifePath Index series were the biggest sellers, taking in $22 billion combined. Meanwhile, Fidelity’s Freedom Index mutual-fund series brought in $14.6 billion, according to Morningstar.
Industrywide, target-date products grew to represent $2.8 trillion at the end of the year, up from $2.3 trillion a year earlier, even as sales fell by 59% overall.
Net sales of target-date mutual funds went negative for the first time, potentially ever, largely due to the liquidation of a $10 billion Kaiser Permanente series. Target-date mutual funds saw $6.7 billion in net redemptions, while CITs raked in $59 billion in new sales, according to Morningstar.
“It’s time for an economic reset,” wrote the California governor, in a post on X.
Masterworks was launched in 2017 but its RIA, Masterworks Advisers, is just three years old.
One 2017 form, no broker license, and a $42 million gap they say surfaced on a webinar.
Fewer than half of Americans in their peak earning years feel on track for retirement, while many say limited financial knowledge and access to professional guidance are holding them back.
Meanwhile, Wells Fargo hauled advisors overseeing $825 million in the West Coast, while Wedbush has welcomed a seasoned professional from Stifel in California.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
