Defined Contribution (DC) plan participants reduced their holdings in fixed income and increased allocations to U.S. small-cap and mid-cap equities in 2013, while target date funds continued their steady climb as a top asset class, according to the second annual edition of Northern Trust’s Defined Contribution Tracker.
Target date funds – asset allocation vehicles that automatically rebalance and invest more conservatively as a participant nears retirement age – drew 14.6 percent of asset flows in retirement plans tracked by Northern Trust in 2013, the strongest flows of any investment category. It was the second year of strong flows into target date funds, which comprised 15.7 percent of all assets in the Northern Trust universe of DC plans, the second-largest share of any category.
“Target date funds have dominated asset flows in our Defined Contribution Tracker, benefiting from their status as the preferred qualified default investment in most DC plans,” said Jim Danaher, managing director of Defined Contribution Solutions at Northern Trust. “With the increased adoption of auto-enrollment and other automated features, we anticipate that target date funds will continue to experience strong growth, eventually accounting for the majority of DC assets.”
Launched in 2013 to serve as a gauge of participant investment activity, Northern Trust’s Defined Contribution Tracker analyzes data from a universe of nearly 100 retirement plans in the United States, representing more than 1.7 million participants, and $225 billion in assets with daily valuation serviced by Northern Trust.Along with a trend toward target date funds, the Defined Contribution Tracker shows that many participants continue to shift between asset classes from year to year. Fixed income saw outflows of nearly 11 percent in 2013, for example, after the category had inflows of 9.2 percent in 2012. U.S. mid cap and small cap drew 6.3 percent and 4.4 percent in new flows in 2013 after losing assets the previous year.