Target-date Funds: Steady Performance, Lower Fees
By Hal M. Bundrick
NEW YORK (MainStreet)--Set a goal year for retirement and choose your fund: target-date mutual funds are gaining favor, and investor dollars. TDFs grew to over $500 billion in assets in the first quarter of 2013, and while growth has slowed, fees continue to fall. The asset-weighted average expense ratio dropped to 0.91% in 2012, down from 0.99% in 2011, according to Morningstar.
The funds have gained popularity in recent years, especially in 401(k) plans, as the allocation of the investments inside the fund adjust to a retirement goal date. Lingering questions regarding performance are being answered, as the funds have performed within broad market trends since 2008.
"Rising markets in 2012 and early 2013 helped target-date series turn in strong absolute returns," writes Josh Charlson, a senior mutual fund analyst for Morningstar in an analysis. "All but Morningstar's Target Date 2000-2010 category posted double-digit returns for 2012, and all but one peer group -- Target Date 2051+ -- has recouped losses from 2008's market crash. Target-date funds also have reflected healthy gains in the financial markets, especially due to rising equity markets."While most (68%) TDFs are actively managed, index-based investing is gaining momentum in the fund class. Flows into passively managed TDFs surpassed their actively-managed counterparts for the first time in 2012.
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